UNIVERSITY OF LJUBLJANA

FACULTY OF ECONOMICS


and


INTERNATIONAL CENTER FOR PROMOTION OF ENTERPRISES
(ICPE), LJUBLJANA








MASTER DEGREE THESIS



PROFITABILITY IMPROVEMENT IN THE OIL REFINERY
- A Case Study of Bongaigaon Refinery and Petrochemicals
























Ljubljana, September 2004 Bishnu Ram Boro




































Author's STATEMENT


I Bishnu Ram Boro hereby certify to be the author of this Master's thesis that was written under the
mentorship of Prof. Rudi Rozman and in compliance with the Act of Authors' and Related Rights
Para. 1, Article 21. I herewith agree this thesis to be published on the website pages of the Faculty of
Economics.


Ljubljana, date....................... ; Signature ...................................


ACKNOWLEDGEMENT
A business cannot continue without running on self-sustainability basis. To achieve
sustainability, it is important to look within and outside business environment and understand
the way of analysing the situation and take all possible measures in order to bring
improvement in the profitability of enterprises on sustainable basis. This is the main issue in
the present scenario of running enterprises. Having working experience in different
departments of Bongaigaon Refinery & Petrochemicals Limited (BRPL) such as Technical
Services, Corporate and Strategic Planning, Project and Refinery Operation during last sixteen
years, I got the opportunity to study about the business process and corporate strategies in
these departments. The issues related to improvement of profitability were in my mind since
the company was facing uncertainty in its existence after the abolition of Administered
Pricing Mechanism (APM) and hence it was my spontaneous eagerness to choose this topic
for my thesis. Keeping the developments in view, an attempt has been made in this thesis to
explore and select factors that could provide the means to the refinery for improvement in the
profitability.
I am very glad to have been given the opportunity to study International MBA for which I am
grateful to the management of Bongaigaon Refinery & Petrochemicals Limited (BRPL).
Without the sponsorship of BRPL, it would not have been possible for me to study
International MBA.
I must express my sincere gratitude to the Government of India for nominating me for this
International MBA program.
I am thankful to International Center for Promotion of Enterprises (ICPE) for their pioneering
services, without that MBA in my life would be a distant dream.
I am indebted to the Faculty of Economics, University of Ljubljana, Slovenia for giving me
the opportunity to study in its prestigious institution. I am indebted and grateful to my mentor
Prof. Rudi Rozman, Faculty of Economics, University of Ljubljana, Slovenia for his
guidance, suggestions and support through the preparation of this thesis.
I am extremely thankful to Shri BK Gogoi, Chairman and Managing Director (CMD) of
BRPL for his valuable suggestion and direction, which inspired me throughout my MBA
study.

ii
I express my sincere gratitude to Shri RM Hazarika, Director Operation and Shri RN Das,
Director Finance of BRPL for their valuable advice, which will be valuable assets in building
my carrier.
I express my heartfelt gratitude to Shri DB Dass, General Manager (P&A) and Shri N
Rahman, Dy. General Manager (Project) for their constant suggestion and supports. Without
their valuable support and suggestion it could have been difficult for me in joining the MBA
course.
I wish to thank Shri N Saikia, Chief Manager (Administration), Shri BP Bora, Chief Manager
(Internal Audit), Shri Ajit Brahma, Senior Manager (CTD) and Shri Partha Gosh, Senior
Manager (Technical Services), Shri KK Sarma, Manager (Elect. Maint.), Shri RK J ha,
Manager (Technical Services), Shri KN Brahma (ERP) and Shri S Sen (Project) for their
constant help in all possible ways since the beginning and through out my stay at Slovenia.
Last but not the least, I must put on record my gratefulness and indebtness to my wife, Smti
J ayanti and daughters Punaam and Halina, who were not only sources of my inspiration and
encouragement to peruse this course, but also managed the domestic front courageously on
their own during my long isolation from home. I would like expressing my sincere gratitude
to my parent and all family friends, whose support was invaluable at certain critical juncture
during last one year.

BISHNU RAM BORO
September, 2004
Ljubljana

iii
TABLE OF CONTENTS
Page No.
CHAPTER 1 INTRODUCTION 1


CHAPTER 2 PRESENTATION OF BRPL 5

2.1 Development of the Company 5
2.2 Products of BRPL 5
2.3 Units of BRPL 7
2.3.1 Refinery Sector 8
2.3.2 Petrochemicals Sector 8
2.3.3 Polyester Staple Fibre (PSF) Plant 9
2.3.4 Utilities of BRPL 9
2.4 Vision and mission of the company 10

CHAPTER 3 PROFIT IMPROVEMENT PROGRAMME 11
AND PROCESS
3.1 Decision making process 11
3.2 Analysis as cognitive method 13
3.2.1 Subject, purpose and method of analysis 13
3.2.1.1 Subject of the analysis 13
3.2.1.2 Purpose of the analysis 13
3.2.1.3 Method of the analysis 14
3.2.2 Business analysis 16
3.2.2.1 Analysis of business functions 16
3.2.2.2 Analysis of profitability 18
3.2.3 Analysis of organisation 19
3.2.3.1 Definition of organisation 19
3.2.3.2 Analysis of organisational structure 20
3.2.3.3 Analysis of organisational culture 24
3.2.3.4 Analysis of organisational processes 25
3.3 Analysis of environment 26
3.3.1 Definition of environment and environmental analysis 26
3.3.2 General environment (PEST) analysis 28

iv
TABLE OF CONTENTS
Page No.
3.3.3 Competitive environment (Industry) 29
3.3.3.1 The Threat of potential entrants 30
3.3.3.2 Bargaining power of firms suppliers 31
3.3.3.3 Bargaining power of customers 31
3.3.3.4 Threat of substitute products 32
3.3.3.5 The Intensity of rivalry among competing firms 32
3.4 SWOT analysis 33
3.4.1 Definition of SWOT analysis 33
3.4.2 SWOT matrix as the basis for performing strategies 34
3.4.3 Development of competitive advantage 35
3.4.4 General questions for SWOT analysis 36
3.5 Setting goals and propose measures 37
3.6 Profit improvement programme (PIP) 39

CHAPTER 4 BUSINESS AND ORGANISATIONAL ANALYSIS 43
OF BRPL
4.1 Analysis of business functions 43
4.1.1 Analysis of purchasing 43
4.1.2 Analysis of production 43
4.1.3 Analysis of sales 45
4.1.4 Analysis of financing 45
4.1.5 Analysis of personnel functions 48
4.2 Analysis of profitability 49
4.2.1 Profit analysis 51
4.2.2 Analysis of assets 51
4.3 Analysis of organisation 53
4.3.1 Board of directors 53
4.3.2 Corporate office and its inter-relation with functional divisions 54
4.3.3 Functional divisions and departments 55
4.3.3.1 Functional area under Director- Operation 55
4.3.3.2 Functional area under Director- Finance 58
4.3.3.3 Functional area under Director- Human Resources 59

v
TABLE OF CONTENTS
Page No.
4.3.4 Analysis of organisational Culture 60
4.3.5 Organisational process 60

CHAPTER 5 OIL INDUSTRY SCENARIO 63
5.1 Global oil industry scenario 63
5.2 Oil industry scenario India 64
5.2.1 Refining capacities 65
5.2.2 Consumption pattern of petroleum products 66
5.2.2.1 Liquefied Petroleum Gas (LPG) consumption pattern in India 66
5.2.2.2 Naphtha consumption pattern in India 66
5.2.2.3 High Speed Diesel (HSD) consumption pattern in India 67
5.2.2.4 Light Diesel Oil (LDO) consumption pattern in India 68
5.2.2.5 Low Sulphur Heavy Stock (LSHS) consumption pattern in India 68
5.2.2.6 Furnace Oil (FO) consumption pattern in India 69
5.2.2.7 Year-wise consumption of petroleum products in India 70
5.2.3 Year-wise import of crude oil and petroleum products in India 70
5.2.4 Year-wise export of crude oil and petroleum products 71

CHAPTER 6 AWOT ANALYSIS OF BRPL 72
6.1 Brief on SWOT analysis 72
6.2 SWOT matrix of BRPL 73

CHAPTER 7 PROPOSED PROFIT IMPROVEMENT MEASURES 78
IN BRPL
7.1 Maximisation of capacity utilisation 79
7.2 Energy optimisation 80
7.3 Production process optimisation 85
7.3.1 Maximisation of hot RCO feed to DCU 85
7.3.2 Minimisation of yields of RCO in CDU and that of 86
Heavy ends in DCU

7.3.3 HSD yields improvement 87
7.3.4 LPG maximisation 87

vi
TABLE OF CONTENTS
Page No.
7.4 Product mix optimisation 88
7.4.1 MS maximisation 89
7.4.2 HSD maximisation 90
7.4.3 LSHS up-gradation to LDO by pour point depressant (PPD) 91
7.4.4 Routing of intermediate streams to finish products 91
7.5 Improvements in maintenance management 92
7.5.1 Proposed central maintenance planning (CMP) department 93
7.5.2 Proposed central work shop (CWS) department 95
7.5.3 Proposed maintenance condition monitoring (MCM) 95
department

7.5.4 Field maintenance groups (Refinery, Petrochemicals, 95
CPP and OM&S)

7.6 System automation 96
7.6.1 Integrated Management Information System (IMIS) 96
7.7 Proposed human resources management in BRPL 98
7.7.1 Cohesive team building 98
7.7.2 Improve inter-group relationship 99
7.7.3 Create continuous learning environment 99
7.7.4 Motivation 99
7.7.5 Performance management system 100
7.8 Organisation of profit improvement programme 101
CHAPTER 8 CONCLUSION 103
BIBLIOGRAPHY 107
ANNEXURE I-VI


vii
LIST OF TABLES
Table No. Title Page No.
2.1 Refinery products of BRPL and their major uses 6
2.2 Petrochemicals products of BRPL and their major uses 7
2.3 PSF products of BRPL and their major use 7
4.1 Physical performance of BRPL during the year 1998 to 2003 44
4.2 Year-wise sales revenue since 1998 to 2003 45
4.3 Current ratio of BRPL during 1998 to 2003 46
4.4 Debt equity ratio of BRPL during 1998 to 2003 46
4.5 Financial stability of BRPL during the financial year 1998 to 2003 (I) 47
4.6 Financial stability of BRPL during the financial year 1998 to 2003 (II) 48
4.7 Financial performance of BRPL during 1998 to 2003 49
4.8 Rate of return (ROR) of BRPL during 1998 to 2003 50
4.9 Return on assets (ROA) of BRPL during 1998 to 2003 50
4.10 Net profit ratio of BRPL during 1998 to 2003 50
4.11 Details of assets of BRPL during 1998 to 2003 52
4.12 Inventory turn-over ratio (ITR) of BRPL during 1998 2003 52
5.1 The average per capita consumption of energy vis--vis 63
hydrocarbon (KgoE)
5.2 Refineries and their processing capacity in India (Year 2003) 65
5.3 LPG consumption pattern in India 66
5.4 Naphtha consumption pattern in India (Basis: Year 2000) 67
5.5 HSD consumption pattern in India (Basis: Year 2000) 67
5.6 LDO consumption pattern in India (Basis: Year 2000) 68
5.7 LSHS consumption pattern in India (Basis: Year 2000) 69
5.8 FO consumption pattern in India (Basis: Year 2000) 69
5.9 Year-wise consumption of petroleum products in India 70
5.10 Year-wise import of crude oil and petroleum products 71
in India
5.11 Year-wise export of crude oil and petroleum products 71
in India





viii


LIST OF FIGURES
Figure Title Page no.
No.

2.1 Process flow chart of BRPL 9
3.1 Three levels of organisational culture 24
3.2 Model of forecasting 27
3.3 Porters model of five competitive forces 30
3.4 SWOT analysis frame work 33
3.5 SWOT/TOWS matrix 35
3.6 Model of competitive advantage 36
3.7 General questions for SWOT analysis 36
4.1 Board of directors of BRPL 53
4.2 Corporate office of BRPL 54
4.3 Interlink between the corporate office and the 54
functional divisions of BRPL
4.4 Functional areas under Director-Operation 55
4.5 Functional areas under Director-Finance 58
4.6 Functional areas under Director-Human Resources 59
7.1 Model of profit improvement programme in BRPL 78
7.2 Systematic energy optimisation approach 81
7.3 Proposed model of maintenance management 93
7.4 Proposed integrated management information system 97
(IMIS) network
7.5 Model chart for performance record 100
7.6 Model chart for standardisation of jobs 100

ix

ABBREVIATIONS USED

AGM Annual General Meeting
APM Administered Pricing Mechanism
ATF Aviation Turbine Fuel
bbl Billion Barrel
BCM Billion Cubic Meters
BPCL Bharat Petroleum Corporation Limited

BRPL Bongaigaon Refinery & Petrochemicals Limited
CAGR Consumption Average Growth Rate
CCU Coke Calcination Unit
CDU Crude Distillation Unit
CFO Coker Fuel Oil
CK Coker Kero
CMP Centralised Maintenance Planning
CN Coker Naphtha
CPC Calcined Petroleum Coke
CR Coker Residue
CRL Cochin Refinery Limited
DCU Delayed Coker Unit
DMT Dimethyl Terephthalate
EAT Earning Before Tax
EOQ Economic Order Quantity
ERP Enterprise Resource Planning
HBCPL Haldia-Barauni Crude Pipeline
HGO Heavy Gas Oil
HPCL Hindustan Petroleum Corporation Limited
HSD High Speed Diesel

IOC Indian Oil Corporation (Indian Oil)
KgOE Kilogram of Oil Equivalent
KTU Kerosene Treating Unit
LDO Light Diesel Oil
LGO Light Gas Oil
LPG Liquefied Petroleum Gas
LSHS Low Sulphur Heavy Stock

x
ABBREVIATIONS USED

mbtu Million British Thermal Unit
MCM Maintenance Condition Monitoring
MEG Mono ethyl Glycol
MMTPA Million Metric tonne Per Annum
MOU Memorandum of Understanding
MS Motor Spirit
MTPA Metric tonne Per Annum
MRL Madras Refinery Limited
MRN Mixed Run Naphtha
MRPL Mangalore Refinery Private Limited

NRL Numaligarh Refinery Limited
MT Metric Tonne
OM&S Oil Movement and Storage
ONGC Oil & Natural Gas Corporation
PPD Pour Point Depression
POL Petroleum Oil & Lubricant
POY Partially Oriented Yarn
PSF Polyester Staple Fibre
PTA Para Toluic Acid
PSU Public Sector Units
RIL Reliance Industries Limited
ROR Rate of return
RPC Raw petroleum coke
Rs. Rupees
SKO Superior Kerosene Oil
SRFT Standard Refinery Fuel per Tonne
SRN Straight Run Naphtha

SWOT Strength Weakness Opportunity Threat
USD US Dollar
VRS Voluntary Retirement Scheme


1
CHAPTER 1
INTRODUCTION
India is currently the worlds 8
th
largest consumer of oil. It is expected to rise to 5
th
place in
the next 20 years. The downstream oil industries i.e. refining and marketing promise to be one
of the most attractive growth markets in the world. It is emphasized that investment of Rs.
2500 billion in the refining, Rs. 210 billion for pipelines and Rs. 1350 billion in the marketing
infrastructure would be required by 2025. The Hydrocarbon vision 2025 formulated by the
Ministry of Petroleum & Natural Gas in 1999 emphasized 90% self-sufficiency in middle
distillate (Diesel/kerosene group) in the sector with an appropriate mix of national oil
companies, foreign players and private Indian players so as to develop a globally competitive
industry. According to this report, the country would require 277 MMTPA petroleum products
and 358 MMT refining capacity is to be build up in order to achieve 90 % self-sufficiency.
Corresponding increase in pipeline and marketing infrastructure would also be required. The
consumption of petroleum products has grown 33 times from 2.7 million tones during 1947-
48 (year of independence) to about 98 million tones in 2001-02. Vast network of over 30,000
dealerships and distributorships has been developed backed by over 400 storage points
countrywide including remote and far-flung areas. 18 refineries support these with the
processing capacity of 112 MMTPA, crude and product pipelines network of over 7000
kilometres, storage terminals and bottling plants and fleet of ocean going tankers on time
charter and road tankers.

Indian Refineries were running earlier under Administered Pricing Mechanism (APM)
system, which gave assured profit margin to them and there was basically no competition
among the oil refineries. With the influence of global free economy, high imported crude oil
price, Government of India eventually led to complete deregulation of Administered Pricing
Mechanism and free market on 1
st
April 2002. This has brought sea change in the oil refining
business environment in India. In the present competitive environment, Indian oil refineries
have no other option but to compete among themselves and with the private sector for
their survival and growth. Entrance of private sector in the oil refining business further
enhanced the competitiveness. Today, Indian PSU refineries are to compete with the private
giant like Reliance Industries Limited (RIL).
Bongaigaon Refinery & Petrochemicals Limited (BRPL) was incorporated as Government of
India Undertaking under the administrative control of the Ministry of Petroleum and Natural
Gas on 20th February 1974. With an investment of about Rs. 8,000 million in the refineries
and petrochemicals plants, BRPL has the unique distinction of being the first indigenous grass
root refinery in the country integrated with a petrochemical complex at one location. Since its
inception, BRPL stands as a most prominent industry in the region. As a public undertaking to
the government of India, the company has continuously endeavouring the responsibility to
fulfil the need and aspiration of the people of the region by contributing in socio-economic
development. In the process of phase-wise abolition of Administered Pricing Mechanism
(APM), the government of India has allowed both private and public sector players to

2
compete in the petroleum refining business. This has led to crisis in operating small stand-
alone public sector oil industries in the country. BRPL, being a small stand-alone refinery
cum petrochemicals industry has strived for its survival in the stiff competitive environment.
In the process the government of India disinvested BRPLs share and the company became a
subsidiary of Indian Oil (IOC), another public enterprises on 29th of March 2001.
BRPL is a refinery with 2.35 million tones per annum of crude oil processing capacity. The
employees strength is at present 1800. The company has many strategic disadvantages in the
competitive market due to its size. Number of employees compared to the size of the refinery
is very high. The company also has locational disadvantage due to its existence in the far most
North Eastern part of the country, where transportation of raw materials and products etc. are
problematic. Cost of crude oil movement through pipeline is also high due to its distance from
the port and Krishna Godavari basin, which are directly affecting the processing cost. After
deregulation of APM by the government of India, the company is facing with many
challenges for its survival and growth. There were rises and falls in the overall performance of
the company during last few years due to uncertain business environment. The refinery has
been running at under capacity due to short supply of crude oil and other reasons such
as products containment problem. These and emergency shutdown of the plants on
account of technical failure are the main factors contributing to poor performance of the
company. However, iinfrastructure facilities have been developed to supply crude oil from
Krishna Godavari Basin of Southern India and for importing crude oil, therefore shortage of
crude oil may not be a hindrance in full capacity utilization as long as the company can effort
to buy crude oil from all these sources. Enhancement of refining capacity involves huge
capital investment and it does not seem to be a good proposition at this juncture. Existing
crude oil supply pipelines are partly owned by Indian Oil and partly by Oil India Limited and
they are used on shared basis with other Indian Oil refineries. Similarly IOC owns products
pipeline and the same is used as shared basis. Therefore supply of crude oil as well as
dispatch of products by pipelines stand as another bottlenecks in capacity enhancement of
BRPL.

Viability of the refinery is a question at the present highly competitive environment. Another
problem of the company is lower market price of petrochemical products, which leads to
forced shutdown of petrochemicals units since last two years. In fact the company incurred
losses during the financial year 2000-01 and 2001-02. However, during the financial year
2002-03 the company has made profit and also present financial trend indicates even better
profit margin during the financial year 2003-04. At present, refinery is not in the crisis. It was
very close in the last years. This is a kind of warning of taking care for improvements.
However, in such an uncertain changing market scenario, maintaining profitability on
sustainable basis is a big question. Closure of the company cannot be a solution because the
company has already invested a huge amount in infrastructure development. Moreover, as a
Public Enterprise to the government of India, BRPL has socio-economical obligation to the
region. The company can only take short-term or long-term improvement measures inside the
company to meet the above challenges. Implementation of long-term decisions often involves
high capital investment, which may not be possible at this juncture. The option available at

3
this juncture is to continue petroleum-refining business by taking internal improvement
measures by best utilizing existing strength of the company and removing weaknesses to the
extent possible. Opportunities and threats to the company are also to be analyzed carefully
and seriously considered in decision-making process in order to improve profitability. The
purpose of this thesis is to systematically analyze different critical areas with a goal to find
out main areas of improvements in the refinery sectors and to help in making better decisions
within selected areas, which will lead to improvement of profitability of BRPL. For this
reason it is necessary to study and establish a rational and systematic approach to reach the
profit improvement. Only in such a case improvement will be achieved constantly and not by
random.

Method, which is proposed to adopt for analyzing the business, establishing the problems
developing measures and achieving goal of profit improvement are as below:

Analysis of profitability, business and organization
Detailed analysis of critical areas
Analysis of environment
SWOT analysis
Development and evaluation of possible solutions to problems within
critical areas from managerial point of view.

Following different literature on improvement programmes, decision-making, management
and neighbouring areas propose a process of profit improvement programme, which latter
follow in the practical part of the thesis. This approach will be based also on the collection of
literatures on strategic management concepts, business analysis, improvement performance,
crisis management, cost concepts, technology management, competitive advantage,
productivity, profitability and also collection field information etc.

The thesis has been divided into eight chapters. This introductory chapter, which is the
current chapter, deals with the description of the problem, the purpose of the thesis, goal,
methodology and the schemes of the main chapters.

The second chapter deals with presentation of BRPL. It consists of how the company has
developed, what are the investment and its uniqueness. It also contains brief description on
various processing units, their processes, capacities, utility functions, different products
(sector-wise) along with their end uses and also highlight of BRPLs past achievement. Vision
and mission are contained in this chapter, too.

The third chapter deals with the profit improvement programme and process. It includes
theoretical approach in decision-making process and involvement of planning and controlling
in the process. To understand the subject, purpose and method of analysis a brief on cognitive
method is given and subsequently analysis of business functions and profitability is made.
Definition of organisation, analysis of its structure and culture are discussed to understand

4
their influences in an organisation. The chapter deals with environment (PEST and industry
analysis). It is the analysis of external factors that are influencing the business environment
and helps in determining opportunities and threats to the company. To understand the same,
Porters five competitive forces model has been discussed. Discussion on SWOT analysis has
been made to understand the strength, weaknesses, opportunities and threats to the company
and how it can be used in decision-making. Finally, discussion on setting goals, propose
measures and implementation of profit improvement programme has been made.

The fourth chapter deals with business and organisational analysis of BRPL in line with
the theoretical approach made in chapter-3. Business function analysis includes analysis of
purchase, production, sales, financing and personals. Analysis of profitability, profit and
assets analysis are made in order to have an idea about the position of the company. In the
analysis of organisation, organisational structure, culture and processes have been discussed.

The fifth chapter deals with oil industry scenario in the world, in India. It includes
discussion on oil and gas reserves in the world, energy consumption pattern in different
regions and future potential based on the facts and figures. Scenario of oil industry in India
includes trend of production, demand, supply, export and import of crude and petroleum
products as well as future projection.

The sixth chapter deals with SWOT analysis of BRPL. In this chapter, a brief on SWOT
analysis and development of SWOT matrix of BRPL is discussed and finally conclusion has
been drawn based on the analysis.

The Seventh chapter deals with various profits improvement measures in BRPL.
Discussion has been made on various critical areas and issues based on practical approach to
find out solution for improvement of profitability in BRPL. It includes maximisation of
capacity utilisation, energy optimisation, process optimisation, product mix optimisation, and
improvement in maintenance function, system automation and improvement in human
resources management practices. Finally a model organisation of profit improvement
programme has been drawn.

The eighth chapter is the concluding chapter, which summarize the major findings in each of
the previous chapters in a consolidated manner.



5
CHAPTER 2
PRESENTATION OF BRPL
2.1 DEVELOPMENT OF THE COMPANY
Bongaigaon Refinery & Petrochemicals Limited (BRPL) was incorporated as Government of
India Undertaking under the administrative control of the Ministry of Petroleum and Natural
Gas on 20th February 1974 with its corporate office at Dhaligaon, Assam. The company
became a subsidiary of Indian Oil on 29th of March 2001 after disinvestments of share by
Govt of India.
With an investment of about Rs.8,000 million in the Refineries and Petrochemicals plants,
BRPL has the unique distinction of being the first indigenous grass root Refinery in the
country integrated with a Petrochemical complex at one location. The primary unit of the
Refinery, Crude Distillation Unit (CDU-I), with an annual capacity to process 1.0 million tons
of crude per annum (21,900 BPSD) was commissioned in February 1979. In 1981, Kerosene
Treating Unit (KTU), the Delayed Coking Unit (DCU-I) and the Coke Calcinations Unit
(CCU) were commissioned. In 1986, the capacity of the Crude Distillation Unit (CDU-I) was
enhanced to 1.35 MMTPA (29,600 BPSD) through de-bottlenecking. Capacity of the
Refinery was further augmented in 1995 to 2.35 MMTPA (51,400 BPSD) through expansion
of the Refinery comprising of one Crude Distillation Unit (CDU-II) and one Delayed Coking
Unit (DCU-II). Petrochemical sector comprising of Xylenes and Dimethyl Terephthalate
(DMT) plants was commissioned in 1985. Polyester Staple Fibre (PSF) plant was
commissioned in 1988. A LPG bottling plant of capacity 22000 MTPA was added to the
complex and commissioned on March 2003.
At present, the refinery is processing crude oil from the oil fields of ONGC and OIL located
in the North-East India and Ravva crude oil from the Krishna-Godavari basin off the coast of
Andhra Pradesh. The Northeast crude is received through a 750-km pipeline of Oil India
Limited (OIL) originating at Duliajan. Ravva crude oil is shipped to Haldia port where from it
is pumped to Barauni through Haldia-Barauni Crude Pipeline (HBCPL) of IOCL. From
Barauni, it is pumped to Bongaigaon through OIL's crude pipeline.
The company is holding ISO-9002 and ISO-14001 certificates for its excellence in
maintaining products and environment quality. The Company in the past achieved "Excellent"
rating for several years from Government of India under the Memorandum of Understanding
(MOU) system of performance evaluation. The company is proud winner of many national
and regional awards.

2.2 PRODUCTS OF BRPL

BRPL products are basically divided into three parts. These are:
Refinery products

6
Petrochemical Products
PSF Products

Refinery products of BRPL and their major end uses are shown in table 2.1 below:

Table 2.1: Refinery products of BRPL and their major uses

Sources: http://www.brplindia.com

Refinery products such as LPG, MS, ATF, SKO, HSD, LDO and LSHS are used as fuel for
domestic cooking, illumination, automobiles, aeroplane, agriculture and industrial sectors.
Naphtha products are used in petrochemicals and fertilizer industries. CPC is produced from
RPC it is used in aluminium industry. Refinery products are marketed through IOC.

Petrochemicals products are used in the paints, pesticides, thinner, varnish and PSF products
etc. Petrochemicals products of BRPL and their major end uses are shown in table 2.2 below:




Sl.No. Product Major End Use
1. Liquefied Petroleum Gas (LPG) Domestic Fuel
2. Unleaded Motor Spirit (MS) Automobile Fuel
3. Straight Run Naphtha (SRN) Fertilizer/Petrochemical feed
4. Mixed Run Naphtha (MRN) Industrial Fuel
5. Reformer Feed Naphtha (RFN) Petrochemical Feed
6. Superior Kerosene Oil (SKO) Domestic Fuel
7. Aviation Turbine Fuel (ATF) Aviation Fuel
8. High Speed Diesel (HSD) Automobile Fuel
9. Light Diesel Oil (LDO) Agriculture / Industrial Fuel
10. Low Sulphur Heavy Stock
(LSHS)
Industrial Fuel
11. Raw Petroleum Coke (RPC) Manufacture of Calcined Petroleum Coke
12. Calcined Petroleum Coke (CPC)

Manufacture of carbon electrodes for
Aluminium Industry, Graphite electrodes in
Electric-Arc Furnaces, as a Carbon addition
in Steel manufacturing, etc.

7
Table 2.2 Petrochemical products of BRPL and their major uses
S.No. Product Major End Use
1. Ortho-xylene
Manufacturing of Phthalic Anhydride, Paints, Ink etc.
2. Mixed-xylene Manufacturing of Paints, Pesticides etc.
3. Ceenine Manufacturing of Paints, Pesticides etc.
4. DMT Manufacturing of Polyester Fibre/Polyester Filament Yarn/
Polyester Film/Polyester Chips, Resin
5. Petrosol Manufacturing of Thinner, Varnish, Paints, Pesticides etc.
6. Bonmex Manufacturing of Pesticides etc.

Sources: http://www.brplindia.com

BRPL marketed the above products through its own marketing network through out the
country.

PSF products of BRPL and their end uses are shown in table 2.3 below:
Table 2.3 PSF products of BRPL and their major uses
S.No. Product Major End Use
1. Annealed & Non-
Annealed Fiber
Polyester Blended Yarn, Sewing Thread, Sarees, Shirting,
Suiting & Dress Material, Hosiery yarn & knitted Fabric.
2. Trilobal Fibre Fancy Dress Materials
3. Tow & Tops Worsted Fabric, Suiting & Winter Dress Material
4. Fibre Fill Filling Material & Upholstery

Sources: http://www.brplindia.com

PSF products are used for production of dress materials. These products are marketed through
own marketing network under the trade name Bonpoly.

2.3 UNITS OF BRPL
Production units of BRPL are divided into three sectors. These are Refinery sector,
Petrochemicals sector and Polyester Staple Fibre (PSF) Plant. In addition to above, the
company has developed all necessary Utility units in order to cater the need for business
operation.

8

2.3.1 Refinery sector
BRPL is the first refinery installed in India based on indigenous technology. Refinery units
consist of Crude Distillation Unit (CDU), Delayed Coker Unit (DCU), Kerosene Treating
Unit (KTU), Coke Calcination Unit and LPG Bottling Plant. Crude Distillation Units (CDU)
are the mother units of refinery. There are two Crude Distillation Units (CDU-I&II) with a
total crude processing capacity of 2.35 MMTPA in BRPL. In these units crude oil is distilled
in atmospheric distillation column. The finish products of CDU are LPG, Straight Run
Naphtha, Reformer Feed Naphtha, Raw Kerosene, Diesel Oil and Reduced Crude Oil. Kero-I
and Kero-II, the intermediate products of CDU are feed to Kerosene Treating Units (KTU)
and obtain Superior Kerosene Oil (SKO) and Aviation Turbine Fuel (ATF) as finish products.
Processing capacity of KTU is 2,37,500 MTPA of raw Kerosene (Kero-I & II). Reduced
Crude Oil (RCO) the heaviest intermediate products from CDU further processed in Delayed
Coker Units (DCU). There are two DCU units in BRPL, each having capacity to convert
5,00,000 MTPA of Reduced Crude Oil from CDU into Fuel Gas, LPG, Coker Naphtha, Coker
Kero, LGO/HGO, Coker Fuel Oil (CFO) and Raw Petroleum Coke (RPC). LPG and RPC are
marketed as finish products, however other products of DCU are blended with the products
from CDU and KTU to produce Naphtha, MS, HSD and LDO. Part of RPC product is further
processed in Coke Calcination Unit (CCU). CCU is designed to convert 75,000 MTPA of
Raw Petroleum Coke available from DCU into 52,500 MTPA Calcined Petroleum Coke
(CPC). In this unit volatile materials contained in RPC is removed by passing through the
rotary kiln to produced CPC. LPG produced in CDU and DCU units are bottled in the LPG
Bottling Plant. The bottling capacity of this unit is 22,000 MTPA.
2.3.2 Petrochemicals sector

Petrochemicals units of BRPL are running based on refinery-generated feedstock as
downstream industries. It consists of Xylene Plant, Dimethyl Terephthalate (DMT) Plant
Polyester Staple Fibre (PSF) Plant. Xylene Plantt was Built by integrating indigenous and
foreign technologies supplied by UOP (USA), IFP (France) & Englehard (UK), the plant can
produce 29,000 MTPA of Para-Xylene, 6,000 MTPA of Ortho-Xylene and 10,000 MTPA of
Ceenine. It can also produce 40,000 MTPA of mixed Xylene in non Para-Xylene mode of
operation. Para-Xylene is used as feedstock for DMT/PTA plant and Mixed Xylene, Ortho-
Xylene and Ceenine are used in the manufacture of paints, Pesticides, Insecticides etc.
The Reformer unit of this plant was de-bottlenecked in August 1995 increasing the naphtha
utilisation capacity from 80,000 MTPA to 1,07,000 MTPA. Dimethyl Terephthalate Plant
(DMT) has the capacity to produce 45,000 MTPA of DMT. The two basic raw materials used
in the plant are Para-Xylene and Methanol. Para-Xylene is available from the Xylene plant.
Methanol is partly purchased and partly available from own PSF plant. The plant is based on
the technology of M/s. Dynamit Nobel, Germany (presently HULS AG) and engineering was
provided by Krupp-Koppers,Germany.

9

2.3.3 Polyester Staple Fibre (PSF) Plant
Polyester Staple Fibre (PSF) Plant is designed to produce 34,200 MTPA PSF based on
technology supplied by DuPont, USA and engineering by Chemtex, USA. DMT available
from DMT Plant and MEG procured from other sources are the two basic raw materials.
BRPL's PSF is sold in the market in the trade name BONPOLY. The plant has four draw
lines. Initially two Draw lines were designed for production of Annealed fibre and the other
two for Relaxed fibre. The annealed fibre production capacity has now been increased after
converting one of the relaxed draw lines to annealed fibre line. Details of the PSF plant are as
follows:
Integrated process flow chart of BRPL comprising of its refinery and petrochemicals sectors
along with product streams are shown in the figure 2.1 below:
Figure 2.1: Process flow chart of BRPL

Sources: http://www.brplindia.com
2.3.4 Utilities of BRPL
Utilities are important areas, which support operation. To meet the power and steam
requirement BRPL has set up Captive Power Plant (CPP). The plant consists of three steam
Turbo Generators of 16 MW capacity each & five Oil and Gas duel fired boilers of 84-t/hr
Capacity each to cater the needs of the Power and Steam of the Complex. In addition to above
one DG set of 5 MW Capacity is also available for emergency power requirement and quick
start up of unit in case of total power failure. To cater the need of water for drinking,
equipments cooling, fire fighting etc. tube walls, pump house and cooling towers are
installed. Similarly air compressor has been installed in order to cater the need of
compressed air. Treatment of industrial effluent is a part of refinery activities from the

10
environmental point of view. BRPL has installed Waste Water Treatment Plant (WWTP)
to treat the oily waste and chemically contaminated waste coming different units of refinery,
petrochemicals, PSF and OM&S and also the sanitary waste coming from township. This
plant has the facility to recover the oil and to treat the contaminated water up to the
environmentally acceptable limit. Treated water in WWTP is further retreated in Tertiary
Treatment Plant (TTP) and recycled back to the plant as cooling water make up. The
philosophy behind recycling of water is to maintain zero discharge of water to the
environment in order to make the plant environmental friendly and to minimize use of raw
water. In order to cater the need for storage, delivery of crude and products by road, rail and
pipeline and operational requirements such as feeding in units, tank to tank product transfer
etc., BRPL developed adequate infrastructure facilities such as crude and products storage
tanks and product loading gantry/ bays etc.

2.4 VISION AND MISSION OF THE COMPANY
Mission and vision are two important statements showing the purpose, major goals and
interactions of the company. Mission explains the reason of the existence of an organisation
and its relationship toward customers and other stakeholders (Schermerhorn, 1999, pp.159-
161). Vision describes where the company is going in the most general, conceptual terms and
it also provides emotional direction (Higgins, 1993, p.64).
In case of BRPL vision sees the company to emerge as a vibrant, integrated and diversified
petroleum company of national prominence with strong environmental conscience.
In order to fulfil the vision, the company has the following mission:
To achieve excellence in refining and petrochemical businesses
To adopt and assimilate state-of-the-art technology
To diversify and expand operations in upstream/downstream activities
To endeavour excellence in professionalism and continuous up gradation of
knowledge and skill
To contribute towards region's and nation's socio-economic development and generate
goodwill of the people around
To foster spiritual attachment for ensuring ecology protection
To maximize value for shareholders
To imbibe ethics in work and businesses
To promote trust, teamwork and openness among all employees and value their ideas

11
CHAPTER 3
PROFIT IMPROVEMENT PROGRAMME AND PROCESS
3.1 DECISION MAKING PROCESS
Success of an enterprise depends on how correctly decisions are taken in right time and in a
right way. Although, enterprises are aware about the importance of decision making process,
even though often they are experienced with poor or wrong decisions time to times.
Implementation of a programmme based on wrong decisions may often decrease the
potential results of the subject rather than increase the improvement of the achievement
of the subjects goal. Improper decisions do not resolve problems but cause new problems.
Consequences of wrong decisions are poor results of the enterprises.
Before talking about decisions making process, one should know the reasons as to why
decision fails. The failures are basically due to the very nature of decisions: risks and
uncertainty involved. Decisions made today will have influence on the future. They will be
implemented in a more or less unknown future. Within the decision making process failure
appears in two basic steps: in problem identification phase and in the phase of determining the
problem solution.
One of the most important steps in making a decision is to correctly identify the problem of
the subject on which the decision will be made. If the problem is not identified the decision
will not improve but deteriorate the subject. The most frequent cause of failure that is most
under our control is insufficient cognition of the subject (and its environment) of our decision.
The problem identification of the subject is often not satisfactory. Although it is quite obvious
that decisions on a subject will be better if we know the subject well, the cognition of the
subject is rarely discussed in details and the problems are taken as given. We even see the
whole decision making process as a mere choice among alternatives (Rozman, 2000, p. 51).
Cognition of the subject on what decision is made or the identification of the proper problem
is very important.

The knowledge on the subject can be obtained in two basic ways: by intuition and/ or by
analysis. In intuition decisions making, experience and judgment rather than sequential or
explicit reasoning are used. It is based on practice and experience often stored in
subconscious. Learning on the basis of intuition is slow. Development of experience is trial
and error approach. This might be good approach in a simple and unchanging environment.
But in todays complex and changing world it is not correct to rely on intuition only. For
making a good decision, one has to build knowledge on the subjects through scientific
approach and systematic research with a conscious cognition of the subject. Cognitive process
is conducted in a logical and systematic way. It is known as process or method of analysis.

Decision making process can be defined as a process consisting of the following steps:
Finding reason to make a decision

12
Search for alternative solutions
Selecting the best possible alternative.

Finding reason means to find a problem that requires to be solved. However, it can also mean
to take a decision to prevent a problem. Decisions are always made on the subject, with some
purpose. There are always alternative solutions to the problem. If applied they yield different
results so only one solution can be applied to get appropriate result. The rational choice
cannot be made at random. It should follow some criterion: to achieve the goal of the subject
on which the decision is made.

Planning and controlling business or organization is decisions making process. Decision are
made today with an influence on the future. The purpose of planning decisions is to prevent
future problems, to plan execution in such a way that business will run as smoothly as
possible and the purpose of controlling is to resolve the existing problem. Within the
enterprises there are three basic groups of decisions differentiated by subject and criteria (and
by decision maker). They are decisions on product and process, decision on business
functions, and overall business decisions (Rozman, Course material, 2003). Planning is
concerned with developing the course of action in order to improve effectiveness and
productivity and bring profits. Planning can be strategic, tactical and operational. Strategy is
the business orientation that promises if it would be implemented to achieve objectives of a
business or organisation (Puko, Course material, 2003). Strategic planning is a process of
developing and analysing the organisations mission and vision, overall goals and general
strategies and allocating resources. The over all-purpose of strategic planning is to deal
effectively with environmental opportunities and threats as they relate to the organisations
strengths and weakness. Strategic planning includes contingency planning in order to deal
with unexpected and rapid changes (positive and negative) in the environment that will have a
large impact on the organisation and that will require a quick response. Tactical planning is
the process of making detailed decisions about what to do, who will do it, and how to do it.
Tactical planning is made for normal time horizon of one year or less. It is made for shorter
time frame with detail planning. Tactical planning is useful for departmental managers to
anticipate or cope with the actions of competitors, to coordinate with other departments,
customers and suppliers and to implement strategic plan. It generally includes the following
tasks:
Choosing specific goals and the means of implementing the organisations strategic
plan
Deciding on courses of action for improving current operations
Developing budgets for each department, division and project

The purpose of this thesis is to make decision following basic criterion of improvement of the
profitability. To bring the improvement in the profitability of the company, decision-making
must involve analysis of business in order to avoid wrong decision. Operational planning
guides the departments in setting priorities and accomplishing what needs to be done to fulfil
our mission. It assists management in implementing, monitoring, and budgeting program

13
activities. In this way, operational planning ensures that programmed activities are best
positioned to achieve strategic results. In profit improvement programme mostly tactical and
operational planning are more predominantly applicable. Planning must be accompanied by
suitable controls to ensure implementation of the plans and evaluation of their results. If the
plan has not produced the desired results, there may be a need for changing execution or
mission, goals or strategies or the plans.

3.2 ANALYSIS AS COGNITIVE METHOD
The method leading to the cognition of the subject is the analysis. The analysis in general is a
process of cognition of a concrete subject, to enable to make proper decisions on the subject
to achieve subjects goal. Business analysis is a cognitive process of learning about
business to ensure proper decisions that will increase the achievement of the goal of the
business. It can be defined as the process of cognition and as the basis of decision making to
improve the business effectiveness from the users standpoint (Rozman, Course material,
2003). Analysis of the subject must follow some criteria. It breaks the subjects into connected
parts. In case of business the subject can be split into business functions or business process.
The analysis consists of three basic elements: subject, purpose, and method.
3.2.1 Subject, purpose and method of the analysis
3.2.1.1 Subject of the analysis
The subject of decisions making is the company i.e. business and its organization. Business
means business processes of purchasing, personnel, production, sales and finance and their
relationship. Organization means relationships and processes among people that ensure a
rational achievement of a business goal. Linked to the cognition of the company is the
cognition of the environment. To make better decisions, analysis on environment is essential,
because while doing business, forecast on environment gives direction, too.
3.2.1.2 Purpose of the analysis
Determination of the purpose of the analysis is an important part of analysis. Purpose answers
the question why would we like to be cognizant of the subject? Why is the analysis made?
The answer is to make better decisions on the subject in order to increase the achievement of
the goal of the analysed subject. A direct purpose of the analysis is to make a decision to turn
the subject of analysis to the benefit of the organization either by resolving some problem or
by utilizing some advantage and the purpose of the decision is to improve the effectiveness or
efficiency of the subject. The connection between the subject and the goal is the decision. The
purpose of the business analysis is the profitability of organisation analysis is the
efficiency and the environment analysis is to adapt or to change the companys actions.
The economic purpose of the analysis, therefore, is to increase the effectiveness or the
profitability. Cognition depends on the purpose of the analysis. Cognition is different for
long term and short term analysis. In long-term analysis are done from the perspective of

14
broad and important issues. It is basically applied in the long term strategic planning of an
organization. However, in short term, like preparing annual budget or a yearly plan etc. more
detailed analysis is required and long term impacts on the subject is not given due
consideration. However in both the cases the goal of enterprise is defined as improvement of
profitability. The economic purpose of the analysis is the same but the organizational purpose
is different: firstly as long-term decisions on doing the right things and secondly as short-term
decisions on ongoing things right. Programme on profitability improvement deals more with
the short-term issues.
Depending on the purpose, analysis of the subject is to be made only on those parts that
influence the goal of the subject. The purpose of the analysis is defined independently of the
process of the analysis whereas the goal of the analysis is determined inside the analysis. If
the purpose is not defined it is not possible to split the subject into parts and one may not be
able to find out which part to be observed. Than the analysis becomes just for the sake of
analysis without any purpose and goal. Lenz and Lyles (1985, pp. 64-72) and other authors
describe this as paralysis through analysis. This problem is usually ascribed to an
indecisiveness of the decision makers or to the nature of decisions themselves. It is an
organizational problem arising as a result of not defining purpose.

Quite often the distinction between the purpose and goal of the analysis is not clear. Whereas
the purpose of the analysis as the goal of the subject is determined outside the analysis, the
goal of the analysis exists within the analysis. It is the cognition itself, the result of the
cognition process. The goal of the analysis also depends on the purpose. Again, if the two
issues are not distinguished the cognition is conducted for the sake of cognition and not to
improve the subject.
3.2.1.3 Method of analysis
Cognitive process can be divided into observing facts through symptoms, determining reasons
for symptoms by setting hypotheses, and verifying hypothesis. Such a process leading to
cognition is called a method. One of the forms of cognitive processes is the method of
analysis. Method of analysis and the goal can be discussed together. The goal is the last step
in the process or the result of the method. It is the cognition of the subject. It answers the
question of what is going to do to fulfil the purpose of analysis whereas the methods tell about
how to do. Method can be regarded as an orderly way of thinking. Identification of variables
and their impacts on the subject and its goal can be done through proper method only. This
helps in influencing the variables and in decisions making. The analysis is reasonable only if
there is a choice among alternatives solutions. Two basic part of the method of analysis are
observation and diagnosis. Initial part of the analysis as a cognition process is observation of
the subject, not as a whole but only the parts or those variables that influence the goal of the
subject. To observe the proper factors in order to fulfil the purpose and to achieve the goal,
analyst has to have theoretical knowledge. Analyst must know and understand the relation
between the influential factors or variables and the goal of the subject, otherwise some
important variables are left out and some not important cause confusion. Business facts

15
are observed through data, which are written or orally expressed facts. Facts and data apply to
those factors that influence the achievement of the goal of the business. Analyst has to know
how to determine the needed data and verify their availability and some other characteristic of
them. In case of non-availability of some needed data, analyst has to assume similar data or
decide to gather the data especially for the sake of analysis. Quite often some data need to be
considered based on some assumptions. However this involves risk. So analyst must verify
the accuracy of data, the reliability of the sources etc.

Once data are collected, it has to be compared with some basis to find out various information
about the past, present and likely future trend. The choice of the comparison basis is not
deliberate but dependent on the purpose of the analysis. For control purposes, comparison is
made on actual data with planned or some standard data. In the planning process, comparison
is made with the past data, however in strategic planning process comparison of achievement
is made with the competitors or just with those of good companies. This is known as
benchmarking. If no comparable basis is available it should be assumed that everything
could be improved and set a reasonable higher limit. Comparison of data usually shows
some difference or deviation. Deviation differs in their size and direction. Size of deviation is
expressed in absolute or relative terms. Direction of deviation depends on its influence on the
goal or the purpose of subject. A positive deviation increases the goal of the subject whereas a
negative deviation results in a decrease of the goal of the subject. Unless reasons for deviation
are known, it is not possible to find out the solution.

Process of analysis cannot be completed unless diagnosis on the deviation is made. Diagnosis
of deviations is the process of finding the cause of deviation. Each deviation, theoretically,
can be explained by variety of reasons e.g. higher costs can be due to different variables like
higher purchasing prices, lower quality of materials, lower productivity, lower quantity of
products, small series of production etc. To find a proper answer to reasons of deviation, the
analyst has to review all the potential influential factors. These are based on theoretical
approach. Therefore analyst should have good theoretical knowledge to find out the possible
reasons and to determine the right problems and advantages. If problem is incorrectly
identified or defined, any decisions made are directed towards solving the wrong problem.
Most often analyst found one or more factors contributing to deviation. In such a case weight
of the influences of each factors should be established.

It is possible sometimes that no reason for deviation is observed. There may be two
possibilities either all the potential factors are not verified or there exist some additional, not
known factors. In the latter case, analyst has to conduct research work. Problem arises in case
of research because the behaviour of the subject cannot be explained by known reasons and
new reason has to be found. Therefore it is time consuming. Moreover, it needs in-dept
knowledge on the subject. It is difficult to find the reasons deviations. There are many
methods or techniques to make decisions but there is no special technique to identify the
problem. The only reasonable way to find out the problem is to follow the described logical
method of analysis.


16
Each person making decision has to follow some logical process. However, in most cases the
situation regarding analysis is simple and no special knowledge of the method of analysis and
its use is required. But in complex cases, especially in the analysis of entire business, analysis
requires more time and more analytical knowledge or logical reasoning. Some connections
between variables and goals are very complex. Very often the observation is made but the
right diagnosis is not put. Those how cause deviation tend to hide reasons. It is important to
emphasize that the diagnosis is not made to punish the source but to improve the business and
business results.
3.2.2 Business analysis
Business analysis covers a number of different approaches to analyse the business of the
organisation. It consists of the analysis of business functions and of the enterprise goal i.e.
profitability.

3.2.2.1 Analysis of business functions

Within the business functions we usually look at their size, structure, dynamics and
relationships to find out whether it corresponds to other functions and how it impacts
profitability.

Purchasing is the act and the function of responsibility for acquisition of equipments,
materials, supplies, and services. In a narrow sense, the term describes the process of buying.
In a broader sense, the term describes determining the need, selecting the supplier, arriving at
a fair and reasonable price and terms, preparing the contract or purchase order, and following
up to ensure timely delivery.

Impact of purchasing in the overall business operation as well as in the profitability of the
company is significant. For example, it is not possible to get a quality output without a
quality input. If input materials have not timely arrived, the whole business process suffers.
Similarly, if the cost of input materials is high, obviously the cost of production becomes
higher. All these factors are affecting the profitability of the company. Management must
therefore monitor the delivery, performance, quality, quantity and price of inputs from
Suppliers. Purchasing control seeks to ensure availability, acceptable quality, continued
reliable resources and at the same time, reduced cost.

For managing purchasing and inventories, Economic Order Quantity (EOQ) model is very
effective. The EOQ model seeks to balance four costs (purchase costs, ordering costs,
carrying costs, Stock out costs) involved in ordering and carrying inventory. The objective of
EOQ is to minimise the total cost of two of these four costs i.e. ordering costs and carrying
costs. As the amount of order gets larger and larger, average inventory increases, and so do
carrying costs. But placing larger order means fewer orders and thus lowers ordering costs.
Therefore it is important to calculate the optimal order quantity to achieve EOQ. Another way
of managing purchasing and inventories is to establish supply chain with the qualified

17
suppliers. Outsourcing of supply is also a possible way of purchasing and inventories
managing technique that can help to bring down inventory to zero level.

Production analysis provides decision-makers with a detailed understanding of production
capacity, production line operations, work order flow, yield, product quality, and costs. It
involves analysis of technology, optimisation of process and product mix etc. Analysis of
technology helps in understanding its limitation and the scope of modernisation. Optimisation
of processes helps in finding the best possible ways for improvement of quality and yield of
products whereas optimisation of products helps in innovation of new products and finding
possible improvement measures in producing high value products at the cost of inferior
products by way product mix optimisation.

Monitoring, analysing, and reporting on issues related to scheduling, routing, forecasting, and
thereby reduced cycle times, become more efficient and innovative production processes. The
end result is lowering production costs for increased competitiveness and improves product
delivery system for better customer relations. Production analysis enables us to:
Improve yield and yield variance by plant and shift
Guide and monitor quality improvement programs within and across plants
Identify trends in product quality
Decrease material costs
Increase capacity utilisation etc.
Product sales analysis typically involves large volumes of transactional data and
sophisticated analytical techniques. It involves continuous analysis of product inventory in
order to help the organization in matching supply to demand and thereby saving money by
reducing idle inventory and also by preventing lost sales. Monitoring of important inventory
indicators like consumption, turnover, returns and material movements in order to minimize
inventory while still ensuring adequate product supply exists to satisfy demand. Inventory of
finished products analysis consists of reporting current inventory status, analyzing inventory
levels by location, and notifying of shortages via alerts. Business intelligence can also
quantify the monetary impact of inventory shortfalls on sales, predict future inventory needs
and automate the reorder process based on demand forecasts.
Product sales analysis involve analysis of quantity sold, product structure, value, product
market structure, customers, region-wise supply and demand of products, competitors and
market dynamics. Most common user of sales analysis are retailers, to enable to continuous
monitoring of point-of-sale data to uncover sales trends, investigate product demand and
optimise merchandising strategies. Various levels of analysis, from summary reporting to
statistical trending, are required by executives, store managers, product managers, marketing
analysts, as well as external suppliers who provide materials or finished goods. Business
intelligence makes sense of the growing volume of transactional data by identifying trends
and opportunities that create competitive advantage for companies that know and understand
their sales drivers.

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Financial analysis is conducted to assess the financial position of the company. To
understand the financial position of a company it is necessary to analyse liquidity ratios,
leverage ratios, efficiency ratios at least for a minimum period of three years. Liquidity ratios
provide measures of a firms capacity to meet its short-term financial obligations whereas
leverage ratios provide an indication of firms financial risks that is relative proportion of its
debt to its equity. Efficiency ratios reflect whether or not a firm is using its resources
efficiently.

Analysis of human resources of an organisation is important as they strongly influence the
results. Effective and well-motivated employees overcome the deficiencies of poor structure
and processes, while the best structure and processes will not work without employees full
co-operation. Analysis of human resources involves analysis of number of employees and
their structures. The basic aim of human resources analysis is to designing works to maximise
employees innovation, creativity, product quality and customer services, determining
employees productivity and quality of works and measuring employees attitudes about the
work and work environment. Two broad approaches to analysis of personnel are
psychometric tests and assessment centres. Psychometric tests are conducted aiming to
assess ability and capacities. While assessment centres are based on observation of the
performance. Right sizing is a methodology designed to determine the appropriate levels of
resources for particular levels of services. This help the organisation to change the level of the
resources allocated to a particular activity to meet the requirements of markets, competition,
or economic and other constraints. Peoples attitude survey can also be done in order to
measure employees perceptions of organisational climate and leadership style. This helps in
determining whether or not the messages about the organisations overall mission and
objectives have been understood and acted on. These may be strong indicators of any actual
or potential organisational problems.
3.2.2.2 Analysis of profitability
Profitability is a measure of return on certain critical resources employed in business. It is
generally calculated as a return on capital or assets employed in business after making
adjustment for current costs of assets valued historically. Profitability is often regarded as an
overall measure of effectiveness as also the efficiency with which the productive assets and
resources are being maintained and utilized. Profit is needed for sheer survival
development of the company, apart from serving several other purposes viz. reward for
risk taking, resource for expansion and rallying point for enterprise effort and so on.
Every company sooner or later face with the necessity to mount a cost or profit improvement
effort to accomplish results, which have not been possible in the normal routine budgeting
(Jones, Trentin, 1971 p. 240). Authors suggest preparing and conducting different profit
improvement programme. They also suggest most reasonable processes to prepare such
programme. Authors suggest to follow the process of analysis (Rozman, 2000, p. 51) to find
out signs or symptoms of crises and than to find out their causes. Authors in crisis
management emphasize that finding out the real problems is very difficult and often fails.
Slatter (1987, p. 25) and other authors discuss most frequent problems for not achieving

19
profitability. Some of the authors (e.g. Plott, 1998, p. 6) are emphasizing that in most cases
problems derive from the company not by environment. Following diagnosis, authors suggest
different measures for improvements; strategic, tactical and operational.
Profitability of a company can be determined by ratio analysis. Du-Pont analysis determines
the Rate of Return (ROR) of a company, which is the product of net profit margin and
investment. Mathematically, it denotes as below:

EAT Sales EAT
X =
Sales Average total Assets Average total Assets


Note: EAT = Earnings After Tax

Other analysis for determining profitability is Return on Assets (ROA), and Return on Equity
(ROE). Mathematically these can be denoted as below:

Return on Assets (ROA) = {EAT + Interest}/ Average total Assets
Return on Equity (ROE) = EAT/Average total shareholders equity

Profit analysis helps in understanding the net earning per unit sales. It can be determined by
Net Profit Ratio analysis. Higher the ratio indicates more profit is the business operation.
Mathematically, it denotes as below:

Net Profit Ratio = Earnings After Tax (EAT)/ Net Sales

Assets analysis is made to measure the efficiency of the firm from the perspective of
utilisation of its assets. It is related to assets and sales.

3.2.3 Analysis of organization
3.2.3.1 Definition of organisation
Organisation can be understood in two different ways: as social units or institutions and as
structure of relationship. The organization in the latter sense consists of organization
processes like governing, managing, planning, communicating etc. and of its structure.
Organisations (understood in the former sense) are social units consisting of people. They are
social units with a purpose or goal. Goal of enterprises could be making profit (as in the case
of an enterprise), getting pay increase for its members (as in the case of a trade union) or
meeting spiritual needs (as in the case of a religious organisation). An organisation is the
arrangement and use of resources (human, materials and financial) for the accomplishment of

20
goals. An organisation is a social entity that is goal directed and deliberately structured
defines the organisation Draft (1995, p.13).
According to the other author, organization is a structure of relationships among members of a
social unit that ensure the existence and characteristics of thus formed unit and a rational
achievement of social units goal (Rozman, Course material, 2003). This is the definition of
organisation in the sense of relationships, which are well described and analyse.
If an organisation is ineffectively or inappropriately set up in either its arrangements or
structure or in its uses or purposes, it will not be effective in achieving its goals. Managers
must therefore be concerned about how the organisation is designed or structured and how
well it operates or functions (Dyer, 1990, pp. 314-315).
The analysis of organisation consists of analysis of structures, culture and processes
3.2.3.2 Analysis of organisational structure
An organisations structure is the framework, which explains how its resources are allocated
and managed, and the lines of communication and decision-making. The main purpose of the
structure is to ensure that the organisation is designed in the best way to achieve its goals and
objectives. However, an organisations structure exists to achieve a number of purposes as
stated below:
Support the organisations strategy. The structure should be designed in such a way as
to ensure the attainment of the organisations goals and objectives. Strategy is one of
the main determinants of structure
Organise resources in the most efficient and effective way
Provide for the effective division of tasks and accountabilities among individuals and
groups. Division in this way allows for specialisation within specific disciplines and
activities, which becomes more essential as organisations grow in size and complexity
Ensure effective co-ordination of the organisations activities and clarify the decision
making processes
Enhance and clarify the lines of communication up, down and across the organisation
Allow for the effective monitoring and review of the organisations activities
Provide mechanisms for coping with change in markets
Facilitate the handling of crises and problems
Help to motivate, manage and give job satisfaction to individual members of the
organisation
Provide for management succession
Factors that are influenced in structuring an organisation are their history, products and
services, customers and markets, processes, people, size, technology and geographical
dispersion of an organisation

21
The organisations present structure may have evolved over a number of years, as functions
have been added, changed or deleted. Older the organisation, the more important history
is likely to be. It is also more likely to have determined the current structure if there have
been relatively few pressures on the organisation to adapt to changing circumstances, either
because it has monopolistic power or because the industry in which it operates is relatively
slow moving.
The kind of products or services provided by the organisation also affects its structure.
Manufacturing company may have geographically dispersed plants with production lines,
storage and warehousing facilities and distribution networks. Structure of the organisation is
to be designed in order to achieve its goals and objectives. Service organisations have
different requirement and priorities and different functions. The line of communication
between customer and service provider should be shorter than the manufacturer and
customers.
The type of market and customers services affects the organisational structure. In a customer
responsive environment it should be one of the main determinants of structure. If the
organisation is providing services to a wide range of customers in a large number of locations,
it may need to have numerous branches. Similarly, markets where products are to be sold may
also have different requirement.
The process used within the organisation also affects the organisational structure. A
production line process consists of a number of separate tasks carried out by people
specialising in those tasks at different stages of process. The rationale behind this kind of
approach is that specialisation means that people can develop high skills and speed, resulting
in high output at low cost. However maintaining the motivation and morale of production line
operator is important for its effectiveness.
People can affect an organisation in many ways. Firstly, structures do not appear without
people, they are the result of peoples views and beliefs and their approach to manage the
organisation. The types of jobs and people within the organisation will also affect the
structure. Structures with the large number of professionals are more likely to involve team
working, and therefore to be relatively flat compared with an organisation that has to
accommodate a range of jobs from the production line operator to Chairman.
Major influence on the structure of an organisation is its size. Larger the organisation, greater
the need of coordination of various activities vis-a- vis formal systems of communication and
control. In such organisations there are more likely to be a number of specialist departments
with coordination frequently taking place through meeting between departmental heads. The
degree of formality is likely to increase directly in line with size. In large organisations issues
of centralisation and decentralisation become very important.
Technology can have impact on an organisations structure in two ways. Firstly, the
predominant technology with which the organisation is operating will affect the way work is

22
done and how the organisation is structured. Secondly, the event of the new technology will
continue to change working patterns.
The geographical dispersion of an organisation, because of the need to be near raw materials
or customers, will affect its structure. Where there is significant number of dispersion, there is
likely to be more need for careful coordination and control than with a single site location.
The key elements or characteristics of organisational structures are:
Division of labour and work specialisation
Chain of command
Formalisation
Departmentalisation
Span of Control
Centralisation and Decentralisation
Division of labour and work specialisation refer to the process of dividing the total task of
a unit into successively smaller jobs. People working together through a division of labour are
able to produce more than they could if they were working alone. The key issue associated
with division of labour concerns the extent to which jobs should be specialized. Specialisation
is low when employees perform a variety of different tasks and high when each person
performs only a single task. (Cherrington, 1994, pp. 488-489).
Chain of command refers to superior-subordinate authority chains those extents from the top
of the organisation to the lowest echelon. As a link in the chain of command, the manager has
the right to direct the work of subordinates and to make certain decisions without consulting
others. In the chain of command, every manager is also subject to the direction of his superior
(Robbins, 1993, p. 493).
Informality in organisations functions as a lubricant. But too much of it may create messiness
and slipperiness. Some formalisation is needed to increase the effectiveness of its employees,
in terms of better use of discretion by them (Pareek, 1997, p. 422). Formalisation refers to
the degree to which the jobs within the organisation are standardised. It results in a consistent
and uniform output. There are explicit job descriptions, lots of organisational rules and clearly
defined procedures covering work processes in organisations where there is high
formalisation (Robbins, 1993, p. 488).
In an organisation, the unit tasks necessary to achieve the purpose of the organisation (like
productive, services, co-ordination and supervisory activities), are grouped into individual
jobs. The jobs are grouped into administrative units, which are again grouped to form
departments. The groupings are made so as to minimise the total costs of carrying out the
activities (March, 1993, p. 40). There are several approaches to structural design that reflect
different uses of the chain of command in departmentalisation. These are functional,
divisional, customers, geographical, matrix, teams, and networks.

23
Span of control refers to the number of people reporting to a manager. It is important,
because it determines the number of levels and managers an organisation has. All things being
equal, the wider the span, the more efficient the organisation. The more training and
experience the subordinates have, the less direct supervision they need. So managers who
have well-trained and experienced subordinates can function with a wider span (Robbins,
1993, p. 502)
Other situational variables that will determine the span of control include:
Contact required between the manager and subordinate: Jobs requiring more contact
need narrow span of control.
Ability to communicate: When job related discussions are more important, a narrow
span of control is appropriate. When instructions can be written and disseminated, a
wider span of control is possible.
Nature of task: Wide spans of control are possible when nature of task is repetitive and
stable.
Generally managers are often encouraged to eliminate hierarchical levels, by increasing spans
of control to improve organisational productivity (Cherrington, 1994, p. 493). When all the
power of decision-making rests at a single point in the organisation, it is said that the structure
is centralised and to the extent that the power is dispersed among many people, it is said that
the structure is decentralised. Centralisation is the tightest means of coordinating decision
making in the organisation. The most common error committed in organisational design is
centralisation of decision-making. The top managers empowered to design the structure see
error committed below and believe that they can do better; either because they believe
themselves smarter or because they think they can more easily coordinate decisions.
Unfortunately, in complex situations, this inevitably leads to a state known as information
overload. Reasons for decentralisation are that it allows the organisation to respond quickly
to local conditions and is a stimulus for motivation. The dispersal of power down the chain of
line authority is called vertical decentralisation. This happens when the chief executive
chooses to disperse or delegate power to levels lower down in the vertical hierarchy. When
decisional power may remain with line managers in the system of formal authority, it may
flow to people outside the line of structure like analysts, support specialists etc. Thus
horizontal decentralization refers to the extent to which non-managers control decision
processes.
In selective decentralization, the power over different kinds of decisions rests in different
places in the organisation. For example, finance decisions may make at the strategic apex,
marketing decisions in the support units and production decisions at the bottom of the middle
line by the first line supervisors. Parallel decentralization refers to the dispersal of power for
many kinds of decisions to the same place.


24
3.2.3.3 Analysis of organisational culture
The organisations culture has an impact on the efficiency and effectiveness and therefore
analysing it is an important part of gaining a full understanding of the organisation. The
organisational culture is made up of the deeply held beliefs about the way the organisation
should operate. It is organisations value system and will influence the way in which work is
carried out and how employees behave. Organisational culture can be viewed as a complex
set of values, beliefs, assumptions and symbols that define the way in which a firm
conducts its business. Organisational culture has a major influence on goals, strategies, and
policies; it also facilitates or inhibits the implementation of a chosen strategy.
Culture can be thought of as consisting of three levels: at the surface are visible artefacts such
as manner of dress, patterns of behaviour, physical symbols, organisational ceremonies, and
office layout. These include all the things a person can see, hear and observe by watching
member of the organisation. At a deeper level are expressed values and beliefs, which are not
observable but can be discerned from how people explain and justify what they do. These are
values that members of the organisation hold at a conscious level. Some values become so
deeply embedded in a culture that organisational members may no longer be consciously
aware of them. These basic, underlying assumptions are the essence of the culture. These
assumption might includes (1) that individual employees are the sources of all innovation, (2)
That each individual must think and act for him or herself, even if it means defying
supervisors, and (3) that organisation members are part of a family and will take care of and
support each other in taking risks. Figure 3.1 indicates three levels of organisational culture.
Figure 3.1 Three levels of organisational culture

Culture that can be
seen at the surface
level


Deeper values and shared
understandings held by
organisation members


Sources: Course material Rozman, Management and Organisation, 2003

According to some criteria, authors distinguish different types of culture. It is important to
know how to observe and detect culture and to change it (Martin, 2001, pp. 590-592).



Visible
1. Artefacts such as manner of dress, patterns of
behaviour, physical symbols, organisational
ceremonies
Invisible
2. Express values, such as The Penny Idea, The
HP Way

3. Underlying assumptions and deep beliefs, such
as Organization members care about each other
like a family.

25
3.2.3.4 Analysis of organisational processes

Analysis of organisational processes involves analysis of planning, organising, leading and
control of an organisation.

Planning is a process of thinking ahead for developing course of actions in order to improve
effectiveness, productivity and to bring profits to organisation. It sets the direction and
objectives. The purpose of planning is to prevent future problems, to plan execution in such a
way that business will run as smoothly as possible. Planning can be strategic, tactical and
operational. Strategic planning is a process of developing and analysing the organisations
mission and vision, overall goals and general strategies and allocating resources. It is
generally useful in corporate decision-making processes. Tactical planning is the process of
making detailed decisions about what to do, which will do it, and how to do it with normal
time horizon of one year or less is called tactical planning. It is made for shorter time frame
with detail planning. Tactical Planning is useful for departmental managers to anticipate or
cope with the actions of competitors, to coordinate with other departments, customers and
suppliers and to implement strategic plan. Operational planning guides the department in
setting priorities and accomplishing what needs to be done to fulfil our mission. It assists
management in implementing, monitoring, and budgeting program activities.

Organising is the deployment of organisational resources to achieve strategic objectives. It
brings the resources together to run the plans into action. The deployment of resources is
reflected in the organisations division of labour into specific departments and jobs, formal
lines of authority, and mechanisms for coordinating diverse organisation tasks. The
organising process leads to the creation of organisation structure, which defines how tasks are
divided and resources deployed.

Leading builds the commitments and enthusiasm needed for people to apply their talents
fully to help accomplish plans and leadership is the process of inspiring others to work hard to
accomplish important tasks. The foundation of effective leadership lie the way manager uses
power to influence the behaviour of the people. The power of manager emerges from official
status and his unique personality. The power immerses from official status is known as
position power, which has three bases: reward power, coercive power and legitimate
power. Reward power is the capacity to influence or motivate people through reward.
Coercive power is the capacity to punish or withhold positive outcomes as a means of
influencing people. Legitimate power is the capacity to influence people by virtue of formal
authority, or the rights. Personal power lies in the individual manager and the leadership
emerges from his unique personal qualities. Personal power has two bases: expert power
and referent power. Expert power is the capacity to influence other people because of
specialised knowledge and referent power is the capacity to influence other people because of
their desire to identify personally with you. For effective leading of an organisation, leader
should influence and motivate people by position as well as personal power because position
power is often insufficient to achieve needed influence.


26
Organisational control system should be simple; it has to enable us to react quickly. It can
be divided into three forms strategic, management and operational control. Strategic control
is the process of evaluating strategy just after formulating strategy. Management control is
the process of ensuring that major subsystems progress toward strategic objectives is
satisfactory. Operational control is the process of ascertaining whether the role behaviours
(performance) of individuals and work groups satisfy their job descriptions. Controlling
system fails main due to lack of quantitative objectives or performance standards and lack of
timely provided or valid information. For effective controlling organisation must determine
what to measure, establish performance standards, measure actual performance, compare
actual performance with the standard and identify the gaps and take corrective actions.

3.3 ANALYSIS OF ENVIRONMENT
3.3.1 Definition of environment and environmental analysis
Business environment is a set of political, economic, social and technological (PEST) forces
that are largely outside the control and influence of a business, and that can potentially have
both a positive and a negative impact on the business.
Analysis of business environment is a part of corporate strategic analysis in order to design
suitable corporate strategies and their effective implementation and control. Environmental
analysis process involves information collection and interpretation concerning outside forces,
events, and relationships as they affect or may affect the future of the organisation. It helps in
identifying opportunities and threats and also provides information for strategic decision
making and encouraging strategic thinking in organisation. Environmental analysis focused
on the macroeconomic, governmental, technological, social and natural environments.
Identifying and evaluating relevant environmental change are essential means for capitalising
on new opportunities and circumventing treats to markets and marketing strategies.
Demographic shifts, technological innovations and altered lifestyles are continual phenomena
and the trends spill into each other, and the ripples reach every corner of society. Therefore it
is important to anticipate the environmental forces and adapt in time. However, building
adaptive strategies requires an understanding of both the nature and the rate of changes. It is
not easy to predict environmental forces because of high level of uncertainty. To make
effective decisions managers must understand the external environment in which their firms
operate.
External environment can be divided into four major sections. The first two sections cover
environmental scanning and competitor intelligence, which describe how firms collect
information about important environmental trends and detailed intelligence on major
competitors. The next two sections describe about the general environment and competitive
environment. General environment includes demographic changes, socio-cultural changes,
political and legal environment, technological developments and macro economic

27
environment. Competitive environment includes industry-related factors such as potential
entry by new competitors and rivalry among existing competitors.
Environmental scanning activities involve monitoring and evaluating information from the
external environment and disseminating it to key people within the organisation. Business
must direct their efforts to evaluate those trends that have a significant impact on their present
and future product-market activities. To remain competitive, firms must scan important global
trends and events such as important inventions, improvement in manufacturing processes, and
innovations in fabricating or assembling products etc. Continuous scanning of changes in the
external environment enables managers to determine how the firm should positioned in the
long run to exploit new opportunities.
However, in short- to-medium term, it is equally important for the firm to anticipate the
actions of its current competitors and beware of potential entrants. Information about the
competition helps managers develops strategies to counteract or pre-empt their
competitors. Firms gather information about competitors by systematically looking at large
number of factors, including planned new-product introductions, capacity increases, cost
structures, executive incentive and compensation plans and financial position.
Once information is gathered by scanning the external environment and by collecting
intelligence on competitors managers are able to make forecasts about the future. Forecasting
involves the prediction of future events or trends. As a part of environmental forecasting
managers need to anticipate long term changes in the national and international economies, as
well as broad social changes. These changes often have profound implications for the
formation and implementation of their firms strategies.
Inter-relation between environmental scanning, competitor intelligence and forecasting are
shown in the figure 3.2
Figure 3.2: Model of forecasting





Source: Dess, Miller Alex, 1993, p. 39
Forecasting has its limitation due to several factors. One of the major causes of incorrect
forecasts is referred as safe forecast problem. In this situation planners, fearful of adverse
reactions, tend to become conservative in their forecasting in order to avoid risk. This
prevent organisation from taking advantage of new opportunities. Another related problem is
Environmental
Scanning
Competitor
Intelligence
Developing
Forecasts

28
the urge to gather excessive amount of information rather than to think critically about key
information. A survey of forecasting practices in corporations identified four major stumbling
blocks to the successful application of forecasting. These are:
A lack of effective communication between forecast preparers and managers who
used the forecasts for decision-making.
A lack of effective forecasting skills
A disparity between forecast preparers and users in perception of the companys
forecasting requirements
A failure to plan a set of actions that realizes the full benefit of the forecasting
activities.
3.3.2 General environment (PEST) analysis
General environment consists of factors external to the industry that may have a significant
impact on the firms strategies. Many developments in the general environment are difficult to
predict with any degree of accuracy. Macroeconomic developments such as interest rates, the
rate of inflation, and exchange rates are extremely difficult to predict on the medium and
long-term basis. However, some trends in general environment, such as population
distribution by age, ethnicity, and income levels, can be forecast with a high degree of
accuracy. General environment consists of many diverse but interrelated parts like
demographic, socio-cultural, political/legal, technological, macroeconomic and global.
Development in the general environment often provides a firm with opportunities for
expansion in terms of both products and markets.
Demographic changes include the aging of the population, population shifts among regions,
change in ethnic composition, educational levels, household pattern etc. Market are keenly
interested in the size and growth rate of population in different cities, regions, and nations.
Market-product demand is highly sensitive to age group of society, need of products among
different age groups are different. Similarly, people of different groups have certain specific
wants and buying habits. Educational level in the society and household pattern likes family
structure etc. of the society, population shift among regions are also have great impacts in the
business environment, which a managers must study and understand.
Social attitudes and cultural values constantly evolve and can have significant impact on
the business. If we look at the society, we find people are now adopting more conservative
behaviours and ambitions. They are more cautious in their spending pattern and more value-
driven in their purchase. Peoples views on corporations, government agencies, trade unions
and other organisations are different for different people. Company often need to find new
ways to win back consumer and employees confidence. Therefore it is imperative to
conduct social audit and try to improve public image.
Political and legal development can expand or limit a companys freedom of action and
make the environment more hostile or more supportive of its activities. Therefore, manager

29
must closely observe and political and legal situation of the nation in which the business is
operating.
Technological developments affects most products and services as well as the process by
which they are created and delivered. Such advances create new products, shorten the life
cycle of existing products, and change the level of capital investment and production costs of
individual products. Every new technology is a force for creative destruction. It provides
superior value in satisfying needs stimulate investment and economic activity. New
technologies create major long run consequences that are not always foreseeable.
Scientist today is working on a startling range of new technologies that revolutionize product
and production process. Therefore managers should watch the accelerating pace of
technological advancement.
Overall economy of a state greatly influences the strategies and performance of various
industries and competitor within each industry. Some of the important indicators by which the
health of an economy can be judged are growth in GNP, interest rates, inflation rates, savings
rates and trade & budget deficits/surpluses. All these indicators are interrelated. GNP
represents the dollar measure of the value of goods and services produced within the
economy. Increase in GNP is generally associated with higher levels of consumer and
industrial demand for product and services.
Demand for goods and services rises and falls according to fluctuations in interest rates,
higher the interest rate lower the demand. The cost of the capital goes up during the
periods of higher interest rates thus depressing capital investment. Interest rates are important
factor in decision-making process involving major expenditures for plant and equipment;
therefore managers need to monitor them closely. The world has experience major change in
inflation rate due to fluctuation of oil prices during 1980s. Early in the decade, soaring oil
prices fuelled inflation to double-digit levels. When oil prices fell in mid 1980s, the inflation
rate dropped to below two percent. Other two important issues that continue to play a major
role in the macroeconomic environment are the trade and budget deficits because trade and
budget deficits are ultimately financed by increasing debt or by the sale of national assets. The
affects of trade and budget deficits lead to formation of new government policy on taxation
and other legal areas, which are often not conducive to business environment. In todays
increasingly globalised business environments, no business can run without considering the
impact of global business environment. The business trend has accelerated by factors such as
cheaper and faster means of transportation, more powerful communication, technological
advancement, system atomisation etc. In todays scenario, managers must be aware of
potential competition from national and international competitors.
3.3.3 Competitive environment (Industry)
The profitability of the firm and the nature of competition in the industry are more directly
influenced by development in the competitive environment (Dess, Miller, 1993, p.55).
Competitive environment consists of factors relevant to a firms strategy, including

30
competitors (existing and potential), customers, and suppliers. The five forces model,
developed by Michael Porter is the most commonly used analytical tool for examining
the competitive environment. It describes the competitive environment in terms of five basic
competitive forces:
1. Threat of new entrants
2. Bargaining power of firms suppliers
3. Bargaining power of firms customers
4. Threat of substitute products
5. The intensity of rivalry among competing firms
These forces determine the natures and extend of competition, as well as the profit potential
of an industry. Managers should understand how each of these five forces affects the
competitive environment of the industry in which the firm competes. It helps manager to
determine the most appropriate and defensible strategic position within the industry.
Inter-relation among five competitive forces are shown in the figure 3.3
Figure 3.3: Porters model of five competitive forces


Threat of new entrants
Bargaining power of
Suppliers Bargaining power of
buyers



Threat of substitute products

Source: Dess, Miller Alex, 1993, p.56

Porters model shows how five competitive forces are influenced the external business
environment of an organisation.
3.3.3.1 The threat of potential entrants
A new entrant into an industry represents a competitive threat to existing firms; it adds new
production capacity and the potential to erode the market share of existing competitors. The
Rivalry among existing firms
Price competition
Product innovation
Product differentiation
Suppliers
Substitutes
Potential Entrants
Buyers

31
new entrants may bring substantial resources, which were not previously required for success
of industry. To reduce the threat managers may have to erect substantial barriers such as:
Economies of scale : Reduction of cost due to production in large volume
Product differentiation: Differences in physical or perceptual characteristics
which make a product unique in the eyes of the customer
Capital requirement: Amount of investment required to enter an industry,
including plant and equipment as well as working
capital
Switching costs: Costs incurred by a user in changing from one supplier to
another. These may include psychological costs in addition
to financial costs.
Access to distribution: Costs associated with developing a means to distribute a
product or services
Cost disadvantages
independent of scale: Factors that provides an advantage to existing competitors
even when new entrant has comparable economies of scale
like proprietary product knowledge, favourable access to
raw materials, favourable locations, and government
subsidies.
3.3.3.2 Bargaining power of firms suppliers
There are many ways in which suppliers can affect an industrys profit potential. Suppliers
can increase their prices or reduce the quality of goods and services that they provided to
the industries. Conditions under which a supplier group would be powerful include:
Dominance by a few suppliers
Greater concentration than buyer industry
Non-availability of substitute products
Relative lack of importance of the buyer to the supplier group
Importance of suppliers product or service to the buyer
High differentiation by the supplier
High switching costs for the buyer
Credible threat of forward integration by suppliers
3.3.3.3 Bargaining power of customers
Buyers of an industrys product can exert bargaining power over the industry by forcing
prices down, by reducing the amount of goods they purchase from the industry, or by
demanding better quality for the same price. Factors that lead to greater buyer power
include:
Greater concentration than the supplier group

32
Large volume purchases
Undifferentiated or standard products or services of the supplier
Credible threat of backward integration by buyers
Accurate information about the cost structure of the supplier
Also, the greater the price sensitivity of the buyer, the lower the profit potential of the supplier
industry. A buyer industry is likely to be more prices sensitive if the following apply:
The products represent a significant fraction of the buyers total cost
It earns low profits
The suppliers product is unimportant to the quality of the buyers final product
The suppliers product may lead to only marginal savings for the buyer
3.3.3.4 Threat of substitute products
When prices of existing products rise above that of the substitute product, customers tend to
switch to the substitute. A firm competing against a substitute product can attempt to
differentiate its product. Alternatively, the firm can attempt to increase the buyers costs of
switching between product and a substitute product. Substitute products performance trend,
pricing should be closely monitored.
3.3.3.5 The intensity of rivalry among competing firms
In the free market economies, high-level competition among existing firms prevails and is
characterized by intense price competition, product differentiation, or product innovation.
Managers must realise that these forms of competition may not always mutually exclusive
and may occur at the same time. Intense rivalry usually results from the interaction of the
following factors:
Numerous or equally balanced competitors
Slow industry growth
High fixed or storage cost
Lack of differentiation or switching costs
Manufacturing capacity increases possible only in large increments
Competitors with diverse strategies, origins, and personalities
High strategic stakes
High exit barriers for economic, strategic or emotional reasons
Intense rivalry among competitors in an industry can take three specific forms: price
competition, product innovation, and product differentiation.



33
3.4 SWOT ANALYSIS

3.4.1 Definition of SWOT analysis

Though the described analysis of the company and its environment we can see strong and
weak points of the company as well as the opportunities and threats that are forcing it. Most
managers know them on the basis of their experience and knowledge. But we emphasised that
in todays complex environment a logical and methodological approach is necessary. We
could even define the purpose of the analysis as finding out strengths, weaknesses,
opportunities and threats. SWOT is an acronym for Strengths, Weaknesses, Opportunities,
and Threats. The aim of the business and organisation analysis is to find strengths and
weaknesses of the company. The aim of environmental analysis and forecast is to find out
opportunities and threats. We can combine both in SWOT.

The SWOT analysis is an extremely useful tool for understanding and decision-making for all
sorts of situations in business and organizations. SWOT analysis provides information that is
helpful in matching the firms resources and capabilities to the competitive environment in
which it operates. As such, it is instrumental in strategy formulation and selection. Figure 3.4
shows how a SWOT analysis fits into an environmental scan.

Figure 3.4: SWOT analysis frame work


Source: Adopted from http://www.quickmba.com/strategy/swot
Internal analysis examines the capabilities of the organization and its business. This can be
done by determining and analysing organization strengths and weaknesses. External analysis
looks at the main points in the environmental analysis, and identifies those points that pose
opportunities for the organization, and those that pose threats or obstacles to performance.
A firms strengths are its resources and capabilities that can be used as a basis for
developing a competitive advantage. To know about the strength of a company, it is
important to analyse about what the company does well and what makes the company stand
out from competitors. What advantages do the company have over other competitors. The
absence of certain strengths may be viewed as a weakness.
Strength Weakness
Internal Analysis
Opportunity Threat
External Analysis
SWOT analysis

34
To determine the weaknesses, we can list the areas that are a struggle for the company. The
external environmental analysis may reveal certain new opportunities for profit and growth.
Therefore it is important to analyse the external environment and try to uncover areas where
the strengths are not being fully utilized. Changes in the external environment may present
threats to the company. Analysis of threats is important for understanding and estimation of
damage that could happen due to the influence of external environment. To find out the
threats to the company, analyser should study the strength and weakness of competitors and
their emerging business trends that may amplify the weaknesses. Apart from that any other
external threats that may hinder in the success of the company should also be examined
carefully.
3.4.2 SWOT matrix as the basis for performing strategies
SWOT Analysis is an effective way of identifying strengths and weaknesses, and of
examining the opportunities and threats of an organisation. It helps to focus activities into
areas where the organisation is strong and where the greatest opportunities lie and use for all
sorts of decision-making process. SWOT template enables proactive thinking, rather than
relying on habitual or instinctive reactions. It is important to clearly identify the subject of
a SWOT analysis, because a SWOT analysis is a perspective of one thing, be it a company, a
product, a proposition, and idea, a method, or option, etc. In general, SWOT analysis can be
used to assess:
A company (its position in the market, commercial viability, etc)
A method of sales distribution
A product or brand
A business idea
A strategic option, such as entering a new market or launching a new product
A opportunity to make an acquisition
A potential partnership
Changing a supplier
Outsourcing a service, activity or resource
An investment opportunity and similar issues. It is the basis for preparing good
decisions.
A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a
better chance at developing a competitive advantage by identifying a fit between the firms
strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in
order to prepare it to pursue a compelling opportunity. To develop strategies that take into
account the SWOT profile, a matrix of these factors can be constructed as shown in figure 3.5
below:

S-O strategies pursue opportunities that are a good fit to the companies strengths
W-O strategies overcome weakness to pursue opportunities


35
S-T strategies identify ways that the firm can use its strengths to reduce its
vulnerability to external threats
W-T strategies establish a defensive plan to prevent the firms weaknesses from
making it highly susceptible to external threats.

Figure 3.5: SWOT / TOWS Matrix

Strengths Weaknesses
Opportunities S-O strategies W-O strategies
Threats S-T strategies W-T strategies
Source: Adopted from http://www.quickmba.com/strategy/swot

3.4.3 Development of competitive advantage

Companies achieve competitive advantage through acts of innovation. They approach
innovation in its broadest sense, including both new technologies and new ways of doing
things (Higgins, Vincze, 1993, p.411). When a firm sustains profits that exceed the average
for its industry, the firms is said to possess a competitive advantages over its rivals. Michael
Porter identified two basic types of competitive advantage:
Cost advantage
Differentiation advantage

A competitive advantage exists when the firm is able to deliver the same benefits as
competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of
competing products (differentiation advantage). Competitive advantage enables the firm to
create superior value for its customers and superior profits for itself. The cost and differential
advantages are known as positional advantages since they describe the firms positioning the
industry as a leader in either cost or differentiation. A resource-based view emphasized that a
firm utilizes its resources and capabilities to create a competitive advantage that ultimately
results in superior value creation. Figure 3.6 below combines the resource-based and
positioning views to illustrate the concept of competitive advantage:

Resources are the firm-specific assets useful for creating a cost or differentiation advantage.
Capabilities refer to the firms ability to utilize its resources effectively. The firms resources
and capabilities together form its distinctive competences. These competencies enable
innovation, efficiency, quality and customer responsiveness, all of which can be leveraged to
create a cost advantage or a differentiation advantage. The firm creates value by performing a
series of activities, which is known as value chain. To achieve a competitive advantage, the
firm must perform one or more value creating activities in a way that creates more overall
value than do competitors. Superior value is created through lower costs or superior benefits
to the consumer (differentiation).


36
Figure 3.6: Model of competitive advantage












Source: Adopted from http://www.quickmba.com/strategy/competitive-advantage

3.4.4 General questions for SWOT analysis

It is not only possible or necessary to make SWOT analysis in the way we described. SWOT
matrix can be prepared directly on the basis of the knowledge and experience of managers.
Though their discussion and / or questionnaires SWOT matrix can be prepared. Finding on
SWOT analysis varies depending upon the purposes and the organisation on which analysis is
to be done. It is important to clearly mention the description of the subject for which SWOT
analysis is to be carried out so that people contributing to the analysis, and those seeing the
finished SWOT analysis, properly understands the purpose of the SWOT assessment and
implications. In the process of SWOT analysis, an analyser generally tries to find the answers
to the following questions as shown in matrix figure 3.7 below:

Figure 3.7: General questions for SWOT analysis
STRENGTHS
Advantages of proposition?
Capabilities?
Competitive advantages?
USP's (unique selling points)?
Resources, Assets, People?
Experience, knowledge, data?
Financial reserves, likely returns?
Marketing - reach, distribution, awareness?
Innovative aspects?
Location and geographical?
Price, value, quality?
Accreditations, qualifications, certifications?
Processes, systems, IT, communications?
Cultural, attitudinal, behavioural?
Management cover, succession?

WEAKNESSES
Disadvantages of proposition?
Gaps in capabilities?
Lack of competitive strength?
Reputation, presence and reach?
Financials?
Own known vulnerabilities?
Timescales, deadlines and pressures?
Cashflow, start-up cash-drain?
Continuity, supply chain robustness?
Effects on core activities, distraction?
Reliability of data, plan predictability?
Morale, commitment, leadership?
Accreditations, etc?
Processes and systems, etc?
Management cover, succession?


Distinctive
Competencies
Capabilities
Cost Advantages
Or
Differentiation
Advantage
Value
Creation
Resources

37
Continuation of figure 3.7
OPPORTUNITIES
Market developments?
Competitors' vulnerabilities?
Industry or lifestyle trends?
Technology development and innovation?
Global influences?
New markets, vertical, horizontal?
Niche target markets?
Geographical, export, import?
New USP's?
Tactics - surprise, major contracts, etc?
Business and product development?
Information and research?
Partnerships, agencies, distribution?
Volumes, production, economies?
Seasonal, weather, fashion influences?

THREATS
Political effects?
Legislative effects?
Environmental effects?
IT developments?
Competitor intentions - various?
Market demand?
New technologies, services, ideas?
Vital contracts and partners?
Sustaining internal capabilities?
Obstacles faced?
Insurmountable weaknesses?
Loss of key staff?
Sustainable financial backing?
Economy - home, abroad?
Seasonality, weather effects?

Source: Adopted from http://ww.businessballs.com/swotanalysisfreetemplate.htm
Above questions are general in nature however some more points may have to be analysed
based on the nature of a business or organisation.


3.5 SETTING GOALS AND PROPOSE MEASURES

The strengths, weaknesses, opportunities and threats within the SWOT analysis are a rational
basis to make decisions, which will resolve the problems, make use of strengths and
opportunities and minimise consequences of weaknesses and threats.

Decisions can be strategic, tactical or operational. Within the profit improvement programmes
mainly tactical and operational decisions are included. Goals are understood as desired
solution, outcome as compared to the actual one. Strategies and tactics are the ways to arrive
to the goals. Within the profit improvement programmes decisions are mainly trying to
increase sales, decrease costs, decrease assets, increase liquidity, increased productivity etc.

The goal of the analysis is to find out main areas of improvements and to help in making
better decisions within selected areas, which will lead to improvement of profitability.
Increasing quantity of sales can increase profitability of a company. However, the sale price
must cover the cost of production. Increase in sales is possible only by increasing production.
Increase in production can be maximised up to capacity of the production units beyond which
it is not possible. Therefore further increase of production vis--vis sales is possible by

38
enhancement of capacity. Enhancement of capacity is a long-term process and it involves
major investment and therefore it is not a good proposition for profitability improvement in a
short-term basis. However, company should put effort to maximise capacity utilisation in
order to increase the volume of sales.

Profitability can be improved by reduction of assets employed in the business. Assets can be
reduced by optimisation of inventory. Another way to bring improvement in the profitability is
to reduce the cost of production.

Production costs depend on various factors likes cost of raw materials, manpower employed,
technology and effective operation and maintenance of the plant. Cost of raw material is
dependable on external factors, where no significant measures can be taken to reduce cost.
However, it may be possible to reduce the number of employee by careful analysis of volume
and nature of jobs. This may be the cause of resentment in an organisation, which can affect in
the overall organisational goal. Company can introduced voluntary retirement scheme (VSR)
to employees, however this scheme works only when it is attractive in terms of financial
volume. Another problem of VRS is that there is a probability of losing efficient employee,
whose service is important for the company. Therefore, before implementation of such
schemes management must consider all the above factors. Cost of production drastically
varies depending on which technology is adopted. Latest and improve technologies are
progressively more cost effective. However, all technologies in one they become older and not
comparable to new technologies. Therefore all existing installation must find out some
solution to reduce the cost of production. This can be achieved by improving the efficiency in
operation and maintenance and also be optimisation of energy consumption. Improvement of
efficiency in operation is possible process and product mix optimisation, where maintenance
can be more effective by proper planning in resources utilisation. Energy consumption can be
optimised by systematic study of critical areas to find out the potential scope for saving and
adopting proper method for implementation of energy optimisation schemes.

Goals or objectives and measures or decisions to achieve them are determined as an
interactive way. Objectives, representing the desired future situation can be achieved in
different possible ways. We have creatively to think of different solutions and then select the
best.

Following the process of goals setting and measures selection, we prepare the necessary
planning tables to verify the expected results and to enable control to compare.

Duties, responsibilities and authorities are assigned to managers and employees. A follow-up
and controlling processes are established.

Profit improvement programmes are rather complex. They should be properly organised.




39
3.6 PROFIT IMPROVEMENT PROGRAMME (PIP)

Profit improvement programme is defined as an organised effort to promote and manage the
identification and implementation of necessary and worthwhile changes in areas of operation
which management controls and decisions are made largely on the basis of economics.

Profit of an organisation can be improved by improving net profit margin per rupee of sales or
by generating more sales revenue per rupee of investment. Increase of sales revenue is
possible by maximise capacity utilisation however it has limitation. The other way of
increasing profit is to reduce expenses without diminishing sales or to eliminate sales that do
not contribute to profit. Every management strives to do so. When efforts to improve profit or
to reduce costs fall short of their objectives, it is generally not lack of trying but only because
the proper tools have not been used. So it is important to correctly identify the tools and apply
in the form of a profit improvement program.

The need for constant improvement in all areas of operation is one of the basic and continuing
responsibilities of the management. For constant improvement management has to emphasis
that not only profit improvement but also other criteria like ecology should be observed.
However, because of day-to-day operating problems, too little attention is often given to the
need for continual adaptation to changing conditions. Profit improvement program should be
a permanent function. To ensure continuous improvement especially in production units,
management may take clean production approach. It describes a preventative approach to
environmental management. Cleaner production is a 'win-win' strategy; it protects the
environment, the consumer and the worker while improving industrial efficiency,
profitability, and competitiveness. It is supportive to profit improvement. Maintaining
ecological balance is most important topic in todays situation. Industries being the major
contributors to environment pollution, it is a statutory obligation to all the industries to
maintain these standards. Improvement of profitability and maintaining environmental
standard are parallel activities of an organization. Clean production is the continuous
application of an integrated preventive environmental strategy applied to processes, products
and services to increase the overall efficiency and reduce risks to human and the environment.
This can be implemented by input-output analysis, material flow analysis and by development
of indicators to measure and to compare actual improvement with plan or with other
enterprises. Approach to clean production could be better housekeeping, replacement of raw
and auxiliary materials, technological modifications, internal recycling and change of
products etc. The basic goal of clean production approach is to avoid generating pollution,
reduce waste, emissions and environmental and health impacts, realize benefits from these
reductions and use of new markets. Clean production strategy cuts costs of production,
reduces risks and identifies new opportunities and can be the most efficient way to operate
process, produce products and to provide services.

Maintaining a fully organized profit improvement program requires substantial efforts; this
may lose momentum after a while and need fresh stimulus and a new approach. The best
answer may lie in a combined approach, where certain of the features of the program are

40
maintained as a continuing effort and other are applied periodically and for limited duration to
re-stimulate interest and intensity. With the rare exceptions, there is no way to make the
customers buy more goods or pay higher prices at a particular time just because the company
needs the profits. Increased sales or prices of present products or addition of new products is
therefore outside the domain of a profit improvement program effort (Jones, Trentin, 1971,
page 241). Company must rule out wage rates and related factors involving labour
negotiation, or taxes and similar factors involving a branch of government, instead concern
with the things the company buys, including the services of its employees and the manner in
which it operates internally. In short, the profit improvement program is usually
concerned with the factors, which are completely controlled by management. Internal
operation is the proper area for a profit improvement program because decision on what
changes could or should be made can be based on economic considerations of improving
profit or return on investment and are not critically dependent on their acceptability to anyone
outside the organization. These are not necessarily under the control of single individual
within management. There are many aspects of operation, which could be made the objects of
special improvement programs such as productivity, energy optimisation, product quality,
customer services, or return on investment etc.

PIP is to be implemented in different critical areas and therefore involvement of functional
managers is important. Responsibilities and authority of all functional managers are to be
defined. Chief Executive Officer (CEO) of the company being holding the overall
responsibility and authority of a company, his direct involvement in the programme helps
gaining the priority. However, it may not be possible for his constant attention particularly in
a large organisation therefore management should make some one responsible with authority
in formal way. Depending on the magnitude and urgency of the job, this may be a full time
position or part of an established job, involving the following four steps:

Obtaining ideas on how to improve profit and putting these in the form of specific
proposals or recommendations.
Obtaining the information, which is needed for proper evaluation of each proposal.
Presenting the proposal to the members of management who are in the position to
evaluate it and to direct its implementation.
Providing necessary follow through to see whether the expected results have been
obtained and reporting overall progress to top management.

In the areas like production, accounting, research, quality control, or maintenance, the profit
improvement program should be concentrated on the question of how or by what methods
these projects are executed. It is in principle possible to compare the cost of one method with
another. The methods improvement program approach is best applied to operations which are
repetitive, such as production scheduling and unit operation, order handling and billing,
quality testing and inspection, inventory control, maintenance, house keeping etc. However it
is important to determine which area offers the greatest potential for improvement. The first
job is to identify opportunity for improvement, and it is best characterized as a survey or

41
review of the operation under scrutiny. The factual information compiled for a survey or
review study may include a description of how the operation is carried out; statistics on its
performance in terms of throughput, output rates, organization, costs, delays encountered, its
relation to other areas and problems. This facilitates in analysing and organizational learning
process and help in finding solution to the problems. However to be effective, person concern
to survey studies must be familiar with the operation involved; should know what should be
the good practice in this sort of work and trained to examine critically and identify
inefficiencies. Mechanization and automation plays important roles in cost reduction not only
in production but also in office operations, it is important to involve the trained professionals
specialist about the devices during survey study in order to identify the relative merit and
demerit in applications.

It is sometimes difficult to take a decision for implementation of the program even after
survey study, in such a situation it is important to conduct detail feasibility study, because
success or failure of a program depends on how critically the feasibility of the program is
evaluated. Sometimes question arises, how and where to begin with the profit improvement
program. The best way to begin with, where expenditures are greatest and where management
is most interested and sympathetic.

There are many instances of slippage between estimates of savings and the actual estimate.
The estimate must be effectively prepared, in a way, which permits allocation of total
estimated savings to individual accounts or budgets. The degree to which this can be
accomplished depends on the sophistication of both the estimate and the budget system.
Estimating and scorekeeping in a profit improvement program are greatly facilitated through
use of standard costs and variable budgets, which includes:

Documentation of standard operating procedures or process sheets, and determination
of standard quantities of raw material, direct labour, and certain manufacturing
expense elements per unit of product.
Approval of standard procedures and quantities by manufacturing, engineering, quality
control, safety, or other interested departments.
Pricing of standard quantities and hours at standard unit purchase costs and standard
labour rates developed by accounting.
Predetermination of acceptable overhead expense at various operating or production
levels and determination of what portion of overhead is to be considered fixed, what
portion semi-variable, what portion variable, and what basis (example; direct labour)
is to be used for budgeting the variable and semi-variable portions.
Establishment of the operating or production level of each product or department for
the budget period, based on forecasts provided by sales or planning personnel.

In summary, the basic features in setting up a profit improvement program is:


42
Definition of the scope of the program, which is usually the identification and
implementation of necessary and worthwhile changes in method of operation and is
generally limited to areas of internal operation where decisions are made largely on
the basis of economics.
Recognition of three basic objectives: reduction of expenses, reduction of unprofitable
sales, and reduction of inventory and working capital investments.
Appointment of coordinator (full or part time) to head the program, assisted by
management review committee.
Use of professional engineering and system personnel to carry out studies both to
identify opportunities and to verify desirability of proposed changes.
Establishment of a procedure for estimating savings based on fixed ground rules,
which are realistic, understood by everyone, and accepted as a basis for budget
adjustment.
Use of budgetary procedures to monitor and control implementation of changes and
also to provide information for keeping score on individual performance.
Use of a system of formal proposals, survey and study reports, and progress reports,
with appropriate review and follow-up procedures.
Maintenance of high standards of accuracy and integrity in all facets of the program.


43
CHAPTER 4
BUSINESS AND ORGANISATIONAL ANALYSIS OF BRPL
4.1 ANALYSIS OF BUSINESS FUNCTIONS
4.1.1 Analysis of purchasing
Purchasing of goods from crude oil to different materials like chemicals, equipments, and
maintenance spares etc. BRPL has set up separate wings for its convenience. Purchase of
crude oil is dealt by Oil Account Department whereas Materials and Warehouse Department
deal purchase of materials used in the plants and maintenance. Similarly, project purchase
department purchases all materials required in the project.

Supply of crude oil is done through crude pipelines coming from Upper Assam Oil fields and
Haldia-Barauni pipeline. Crude pipelines are partly owned by Oil India Limited and IOC.
Presently the company is processing crude oil coming from Assam oil fields and Krishna
Godavari basin of southern India. Transportation of crude oil is also comparatively higher due
to its distance from the oil fields. Further, the refinery never utilised its full capacity due to
shortage of crude oil in the country. Shortage of crude oil can be mitigating only by importing
from other country, for which the company must take strategic decision.

Materials required in the operation and maintenance of the plants is purchased from the
qualified vendors based on their quality and performance. Since the materials are standard in
nature and the consumption pattern is known, therefore the company has not encountered
major problem so far in purchasing these materials. Purchasing of materials related to projects
is most often problematic due to difficulties in finding vendors and also timely identification
of materials with exact quantities. Some times it leads to delay in completion of project.
Transportation of goods often interrupted due to flood and on and off political disturbance in
the region. Geographical location of the industry is not favourable for transportation of goods.
However company can do very little in this regard.
4.1.2 Analysis of production
BRPL is operating business in the field of crude oil refining and downstream petrochemical
industries. Various products and processing units of BRPL are already discussed in chapter 2.
In addition to crude oil shortage, the refinery units are operating at under capacity due to other
factors such as products containment problem due to wrong production and dispatch planning,
frequent shutdown of the plant due to technical reasons. Refinery units are interrelated to each
other, lower capacity utilization in the primary crude processing units (CDU-I&II) has
subsequent cascading affects to the secondary processing units (KTU, DCU-I&II and CCU)
and ultimately all the units remained under-utilized. On the other hand, if products are not
timely moved that creates containment problem and subsequently plants are forced to run at
lower throughput and finally unit undergoes forced shutdown, if no improvement in products
movement take place. Also, some times plants need to be taken unplanned shutdown due to

44
technical reasons. Frequent shutdown of the plants not only contributes to capacity under-
utilization but also it increases the operation losses and maintenance costs. All the above
conditions contribute to capacity under utilization and therefore profitability of the company
affected. Table 4.1 below shows physical performance highlight of BRPL during the year
1998 to 2003. The refinery was operating at 62.3 % to 81.1 % capacity during 1998 to 2003.

Table 4.1 Physical performance of BRPL during the year 1998 to 2003

(In Metric Tonne)

Note:
(%)* indicates percentage capacity utilisation on design capacity of 2.35 MMTP
(%)# indicates percentage on actual crude throughput

Sources: 26
th
, 27
th
, 28
th
and 29
th
Annual Report 1999-00 of Bongaigaon Refinery &
Petrochemicals Ltd.

The refinery technology is older compared to new refineries of the country, which are
installed, in recent years. Although there are few comparatively older and below sized
refineries in the country but majority refineries are larger. Processing cost of the refinery is
higher compared to new refineries with higher processing capacity and new technology.
Optimisation of energy is one of the most important aspects, which has direct on the profit
fuel and loss of the company. BRPL has put many efforts to make most energy efficient plant
by way of optimisation and brining awareness among the employees. A considerable amount
has already invested but still there is scope for improvement. Table 4.1 shows continual
reduction of fuel and losses since 1998-99 to 2002-2003.

To facilitate the need for crude and products movement and storages the company builds
crude and products tanks. As an environmental keeping up measure, the company has
engaged regular house keeping contracts in all the operation areas.

Refining capacity of the company (2.35 MMPTA) is remaining as bottleneck for the
company. No significant growth/expansion took place in the business during last few years
Crude
Throughput
Light Distillate Middle
Distillate
Heavy Ends Fuel & Loss Finan
-cial
year Quantity (%)* Quantity (%)# Quantity (%)# Quantity (%)# Quantity (%)#
98-99 1658227 70.5 267621 16.2 1038782 62.8 237345 14.4 135184 8.2
99-00 1905851 81.1 315732 16.6 1180568 61.9 252034 13.2 146295 7.7
00-01 1487562 63.3 275309 17.9 930243 63.1 239407 16.1 114485 7.7
01-02 1475071 62.8 271354 18.4 925854 62.8 190741 12.9 96.486 6.5
02-03 1469037 62.3 274700 18.8 936328 64.0 173942 11.9 95162 6.5

45
and resulting stagnation in promotion and employees personal development. The company
needs huge investment to enhance its processing capacity even up to minimum economic size.
4.1.3 Analysis of sales
Petroleum products of BRPL are marketing by IOC, a public enterprises to the government of
India, who is holding the major share in refining as well as marketing of petroleum oil
business in India. BRPL is the subsidiary concern of IOC. However, BRPLs marketing
division sales the petrochemicals products through own marketing networks. Table 4.2 shows
the year-wise sales revenue since 1998 to 2003.
Table 4.2: Year-wise sales revenue since 1998 to 2003
Rupees in Million
Year 1998-99 1999-00 2000-01 2001-02 2002-03
Sales Revenue 10985.67 11131.49 12844.54 11798.75 16641.29
% increase over previous year - 1.3 15.4 (8.1) 41.0
Note: Figure under bracket indicates negative
Sources: 26
th
, 27
th
, 28
th
and 29
th
Annual Report 1999-00 of Bongaigaon Refinery &
Petrochemicals Ltd.
From figure 4.2 it appears that the sales revenue of the company is in the increasing trend
except in the financial year 2001-02. In fact the company incurred losses during the financial
years 2000-01 and 2001-02 due to having no profit margin and hence the production and sales
have been restricted. However, in the subsequent financial year i.e. 2002-03 the sales revenue
jumped to 41.0 % increase over the previous year. Trend of financial year 2003- 04 is even
better.
The demand and supply trends of petroleum products in the country is encouraging. The
hydrocarbon vision 2025 formulated by the Ministry of Petroleum & Natural Gas in 1999
emphasized 90% self-sufficiency in middle distillate (Diesel/kerosene group) in the sector
with an appropriate mix of national oil companies, foreign players and private Indian players
so as to develop a globally competitive industry. According to this report, the country
would require 277 MMTPA petroleum products and 358 MMT refining capacity is to be
build up in order to achieve 90 % self-sufficiency.
From the growing performance of BRPL as well as the countrys demand forecast, it is
anticipated that sales of petroleum products will not be a problem in near future.
4.1.4 Analysis of financing
Analysis of current ratio of BRPL shows fluctuating scenario during last five years since 1998
to 2003. Table 4.3 shows the year-wise current ratio position of BRPL. From the figure it

46
appears that during the financial years 1998-99 and 1999-00 and 2000-01, the current ratio are
gradually decreased from 2.05 to 1.74 and that has come down to 0.69 in the year 2001-02.
This indicates poor liquidity position of the company. However, in the financial year 2002-03
significant improvements have been made compared to 2001-02. This indicates that the
liquidity position of BRPL is fluctuating and even thought it is in improving trend but the
capacity to meet the short-term financial obligation is still below the optimum level.
Table 4.3: Current ratio of BRPL during 1998 to 2003
(Rupees in Millions)

Financial Year Current Assets Current Liabilities Current Ratio
2002-03 7796.27 5606.75 1.40
2001-02 3474.77 5040.59 0.69
2000-01 3843.02 2203.52 1.74
1999 - 00 3706.50 1821.29 2.04
1998 - 99 3580.66 1747.48 2.05

Note: Current Ratio (CR) = Current Assets (CA)/Current Liabilities (CL)

Sources: 26
th
, 27
th
, 28
th
and 29
th
Annual Report 1999-00 of Bongaigaon Refinery &
Petrochemicals Ltd.
Table 4.4 Debt equity ratio of BRPL during 1998 to 2003
(Rupees in Millions)
Financial Year Total Debt Total Shareholders
Equity Funds
Debt equity Ratio
(In Percentage)
2002-03 1777.54 4227.61 42.0
2001-02 1267.42 3051.78 41.5
2000-01 851.44 5603.93 15.2
1999 - 00 524.23 6178.34 8.5
1998 - 99 617.54 5973.88 10.3
Note: Debt Equity Ratio = Total Debt/ Total Shareholders Equity Funds
Sources: 26
th
, 27
th
, 28
th
and 29
th
Annual Report 1999-00 of Bongaigaon Refinery &
Petrochemicals Ltd.


47
Debt equity analysis of the company for the financial years 1998-99 to 2002-03 is shown in
the table 4.4 below. It indicates that the debt-equity ratio of the BRPL was only 10.3% in the
financial year 1998-99 but that has increased to 42.0 % during the financial year 2002-03.
There fore the companys margin of safety has been diminished in the event of financial crisis
and the companys flexibility for borrowing money in case of crises or investment may be a
problem. In such a situation investment for capacity enhancement does not seem to be a good
proposition. However, the company has to think for short-term profitability improvement
measures with the existing set up of the company rather than investing money for capacity
enhancement.

Financial stability of a company can be determine by the following ratio analysis:
Financial Stability = (Equity + Long-term debts)/ Fixed Assets
Financial Stability = Equity / Fixed Assets

Financial stability of BRPL during the financial year 1998 to 2003 are shown in table 4.5 and
table 4.6 below:

Table 4.5: Financial stability of BRPL during the financial year 1998 to 2003 (I)
(Rupees in Millions)
Financial Year Equity Long- term Debt Fixed Assets Stability Ratio
(percentage)
2002-03 1998.18 1777.48 4383.96 86.1
2001-02 1998.18 613.48 4672.42 55.9
2000-01 1998.18 524.09 4700.89 53.7
1999 - 00 1998.18 522.20 4612.02 54.6
1998 - 99 1998.18 614.06 4612.17 56.6

Note: Financial Stability = (Equity + Long-term debts)/ Fixed Assets

Stability ratio analysis of BRPL from table 4.5 indicates 53.7% to 56.6% during the financial
year 1998-99 to 2001-02, which shows stable financial condition of the company. However,
the same has jumped to 86.1 % during 2002-03. The basic reason for increase of this ratio was
due to borrowing of long-term loan in order to increase the working capital. In-spite of
making profit during 2002- 03, BRPL faced shortage of working capital due to the fact that
the company incurred losses during the financial year 2000-01 and 2001-02. However the
assets of the company are still higher compared to equity and long-term debts combine.

Table 4.6 below indicates that the equity and fixed assets ratio of BRPL during the financial
year 1998-99 to 2002-30 was within 42.5% to 45.6%. Which show a stable financial
condition.



48
Table 4.6: Financial stability of BRPL during the financial year 1998 to 2003 (II)
(Rupees in Millions)
Financial Year Equity Fixed Assets Stability Ratio
(percentage)
2002-03 1998.18 4383.96 45.6
2001-02 1998.18 4672.42 42.8
2000-01 1998.18 4700.89 42.5
1999 - 00 1998.18 4612.02 43.3
1998 - 99 1998.18 4612.17 43.3

Note: Financial Stability = Equity / Fixed Assets

From the above analysis it is seen that in case of any eventualities, the company has the
capabilities to repay all the debts and equity.
4.1.5 Analysis of personnel functions
BRPL is having 1777 employees; as of 31
st
March 2003.This was 1810 as of 31
st
March 2002.
Reduction of manpower during 2003 was basically due to superannuation, resignation, death,
and voluntary retirement under Voluntary Retirement Scheme (VRS). Employees of BRPL
are long experienced and skilled in their field of work. Most of them are working in the
company over fifteen years. Employees are more or less qualified as per the requirement for
the job. The company ensures minimum qualification to its employees by proper selection
criteria. Moreover, BRPL gives importance to knowledge and skilled up-gradation to be in
line with industry standard for which necessary training programme conducted, which include
in-house refresher programme/ training by internal as well as external faculty, external in
country and foreign training in various spheres such as profitability model, ethics/value
building etc. The company imparted training to 411 executives and 756 non-executives during
2002-03. Work forces are rational and they are basically supportive to management.
Absenteeism and lateness of employees are no longer a problem to the management after
introduction of electronic time recording system in the factory gate. Grievances from
employees or disputes are the common problem to all the industries however rather than few
grievances from union it is not significant in BRPL.

The composition of manpower includes people from various socio-economical backgrounds
from all over the country including disabilities and ex-serviceman. At present 77 women
employees are working which is 4.33 % on the total employees of BRPL. Proportionality of
employees composition is maintained as per the presidential directives and government
guidelines issued from time to time.

Recruitment of new employees during last few years was insignificant. However, employees
with long experience and skill are retiring and would be retired within next few years, which

49
may tend to create vacuum in different areas. To avoid such sudden crises of manpower, it is
time for BRPL to emphasize on recruitment of fresh manpower with long-term planning.

As a welfare measure of employees, the company provided well-developed township facilities
with hospital and other recreational facilities like clubs, canteen, parks, playgrounds etc. 95%
of the employees are residing in the township, maintaining communal harmony irrespective of
caste and creeds. They are commonly celebrating various national and regional festivals on
the behest of management, which develop interpersonal relationship among the employees
and also improve the management- employee relationship. Medical policy of the company for
employees and their families are attractive. The company introduced group insurance policy,
which is beneficial for the employees in case of any accident. Salary and other benefits like
parks, allowances etc. are at per with the other oil industries, which is attractive compared to
most of other business sectors in India. All these facilities hold good for retaining experience
work force of the company.


4.2 ANALYSIS OF PROFITABITY
Business performance of BRPL during 1998 to 2003 yields a mixed result of profit and loss.
Highlight of the performance during these last five years is shown in table 4.7 below:
Table 4.7: Financial performance of BRPL during 1998 to 2003
(Rupees in Millions)

FINANCIAL 1989-99 1999-00 2000-01 2001-02 2002-03
Turnover 9393.61 12915.16 12552.99 11951.90 18616.95
Earning After Tax
(EAT)
342.60 322.38 (574.40) (1986.14) 1784.46

Note: figure shown under bracket indicates loss

Sources: 26
th
, 27
th
, 28
th
and 29
th
Annual Report 1999-00 of Bongaigaon Refinery &
Petrochemicals Ltd.
The Company has recorded quantum jumps financial performances during the year 2002-03.
The turnover in 2002-03 was Rs.18616.95 million and corresponding Earning After Tax
(EAT) of Rs. 1784.46 millions. The sale value of petroleum products increased during this
year due to realisation of import parity prices of the POL products. However, the company
incurred losses during the financial year 2000-01 due to lower capacity utilisation of refinery
on account of shortage of crude oil. The sales value in petroleum product during 2001-02
decreased due to lower allocation of indigenous crude oil and non-processing of targeted
quantity of imported crude oil as processing of imported crude oil contributed negative profit
margin.

50
Table 4.8 Rate of return (ROR) of BRPL during 1998 to 2003
(Rupees in Millions)

Financial Year Earning after
taxes (EAT)
Average Total
Assets
Rate of Return
(In Percentage)
2002-03 1784.46 12180.23 14.7
2001-02 (1986.14) 8147.19 (24.4)
2000-01 (574.42) 8544.10 (6.7)
1999 - 00 322.38 8318.52 3.9
1998 - 99 342.60 8192.83 4.2

Note: Figure shown under bracket indicates loss
Rate of Return (ROR) = Earning after taxes (EAT) / Average total assets

Sources: 26
th
, 27
th
, 28
th
and 29
th
Annual Report 1999-00 of Bongaigaon Refinery &
Petrochemicals Ltd.
Table : 4.9 Return on assets (ROA) of BRPL during 1998 to 2003
(Rupees in Millions)

Financial Year Earning after
taxes (EAT)
Average Total
Assets
Interest Return on Assets
(In percentage)
2002-03 1784.46 12180.23 258.86 16.7
2001-02 (1986.14) 8147.19 376.92 (19.8)
2000-01 (574.42) 8544.10 114.84 5.4
1999 - 00 322.38 8318.52 90.92 5.0
1998 - 99 342.60 8192.83 91.67 5.3

Note: Figure shown under bracket indicates loss
Return on Assets (ROA) = {Earning after taxes (EAT) + Interest}/ Average Total
Assets
Sources: 26
th
, 27
th
, 28
th
and 29
th
Annual Report 1999-00 of Bongaigaon Refinery &
Petrochemicals Ltd.
Table 4.8 and table 4.9 show rate of return (ROR) and return on assets (ROA) of BRPL
during the last five years indicating the similar fluctuating financial performance of the
company. ROR as well as ROA during the financial year 2002-03 has considerably improved

51
from the negative value during the financial years 2000-01 and 2001-02. This indicates
overall improvement in the profitability of the company but considering the one-year
performance it is difficult to predict the future business trend.
4.2.1 Profit analysis

Financial performance of BRPL during 1998 to 2003 was inconsistent. EAT of the company
during the financial year 1998-99 and 1999-00 was Rs. 342.6 and Rs.322.38 millions against
net sales of Rs. 9608.19 and Rs. 13814.73 millions respectively. Earnings during the financial
years 2000-01 and 2001-02 was negative and corresponding sales also lower during these
years compared to the year1999-00. However, performance of the company has substantially
improved during the financial year 2002-03. Table 4.10 shows EAT, net sales during 1998-
2003 and net profit ratio of corresponding years.

Table 4.10: Net profit ratio of BRPL during 1998 to 2003
(Rupees in Millions)

Financial Year Earning after taxes
(EAT)
Net sales Net Profit Ratio
(In percentage)
2002-03 1784.46 18615.30 9.6
2001-02 (1986.14) 11949.52 (16.6)
2000-01 (574.42) 12430.85 (4.6)
1999 - 00 322.38 13814.73 2.3
1998 - 99 342.60 9608.19 3.6


Note: Figure shown under bracket indicates negative
Net Profit Ratio = EAT/ Net sales

Sources: 26
th
, 27
th
, 28
th
and 29
th
Annual Report 1999-00 of Bongaigaon Refinery &
Petrochemicals Ltd.

Table 4.10 shows fluctuating net profit ratio of BRPL during last five years from 1998 to
2003. Net profit ratio during the financial year 1998-99 (3.6%) and 1999-00 (2.3%) was quite
low and the same gone down to negative during the financial year 2000-01 (- 4.6 %) and
2001-02 (-16.6). However, the same has substantially improved (9.6 %)during the financial
year 2002-03. Fluctuating situation indicates uncertain trend in the petroleum refining
business.

4.2.2 Analysis of assets

Total assets of BRPL during the financial year1998-99 to 2001-02 were steady within Rs.
8100 to Rs. 8500 millions and the ratio of fixed and current assets of the company were

52
proportional. However, the total assets of the company have increased to about one and half
times during 2002-03. The basic reason for increase of current assets was due to increase of
loan to meet the working capital of the company. Table 4.11 shows detail of assets of BRPL
during 1998-2003.

Table 4.11: Details of assets of BRPL during 1998 to 2003

(Rupees in Millions)
Financial Year Fixed assets Current assets Total assets
2002-03 4383.96 7796.27 12180.23
2001-02 4672.42 3474.77 8147.19
2000-01 4700.89 3843.21 8544.10
1999 - 00 4612.02 3706.50 8318.52
1998 - 99 4612.17 3580.66 8192.83


Inventory turnover ratio (ITR) of BRPL during 1999 to 2003 (Table 4.12) shown gradual
improvement indicating that the finished goods are sold faster without remaining as inventory
for longer period.

Table 4.12: Inventory turn- over ratio (ITR) of BRPL during 1998 to 2003

(Rupees in Millions)
Financial Year Sales Revenue

Gross Profit Finish Goods Inventory Turn-over
Ratio (Times in a year)
2002-03 18615.30 3077.06 1039.30 15.0
2001-02 11949.52 (3102.07) 865.09 17.4
2000-01 12430.85 (573.98) 1160.88 11.2
1999 - 00 13814.73 318.47 1334.84 10.1
1998 - 99 9608.19 351.15 876.40 10.6


Note: Figure shown under bracket indicates loss
Inventory turn-over ratio (ITR) = Cost of goods sold / Average finished
goods stock
Cost of Goods Sold = Sales revenue Gross profit

Sources: 26
th
, 27
th
, 28
th
and 29
th
Annual Report 1999-00 of Bongaigaon Refinery &
Petrochemicals Ltd.

From the above table it is evident that the products demand in the market is improving
progressively.


53
4.3 ANALYSIS OF ORGANISATION

4.3.1 Board of directors

The top governing body of BRPL consists of shareholders and is known as annual general
meeting (AGM). Shareholders elect the central governing body: the board of directors. The
philosophy of corporate governance of BRPL envisages transparency in all areas of
operation, accountability, equity and reporting in its interactions with public, employees,
government and stakeholders. It has been the constant endeavor of the company to maximize
the value of its stakeholders. BRPL is committed to achieve complete compliance of
conditions of corporate governance as enshrined in the agreement with stock exchanges.
Board of directors of BRPL formed with ten directors including C&MD of the company. It
consists of functional directors, director nominated by the government of India (Central
Government), director nominated by the government of Assam (State Government) and
directors nominated by Indian Oil (IOC) and the company secretary. Chairman and managing
director (C&MD) chaired the boards. C&MD along with other functional directors (Director -
Operation, Director-Finance and Director HR) are the full time directors and they are
directly responsible for all corporate and business function operation. Company being the
public enterprises to the government of India and it is located in the state of Assam; therefore
both governments nominated their members as interested stakeholders of the company. BRPL
is a subsidiary to IOC, public sector enterprises to the government of India. Two directors
from IOC are also associated in the BRPL board of directors. Function of company secretary
is to place the board agenda in the meeting. Board of directors are responsible for making
corporate policy decision-making etc. However, before going for implementation the same
has to be approved by the board of directors of IOC. Implementation of decision often takes
long time due to long approval procedures by both BRPL and IOC boards. Board of directors
meeting held at least once in every three months. Structure of board of directors of BRPL is
shown in the figure 4.1 below:
Figure 4.1: Board of directors of BRPL

Company Secretary
Source: Author
Functional Directors Director
nominated by
Government of
India
Director
Nominated by
Government of
Assam
Director
nominated by
Indian Oil
Chairman & Managing Director

54
The decision making process of board of director is taking long time. This is the basic
problem of existing in BRPL.
4.3.2 Corporate office and its inter-relation with functional divisions
Corporate office consists of the office the C&MD, all functional directors, company
secretariat (CS) and corporate and strategic planning (CSP). Company secretariat is
responsible for preparing boards agenda and maintaining all the records related to boards
proposals, policy decisions etc. while corporate and strategic planning (CSP) department is
responsible for preparation of strategic planning of the corporation. They are directly
reporting to C&MD. Structure of BRPL corporate office is shown in the figure 4.2 below:
Figure 4.2 Corporate office of BRPL
Source: author
Inter-link between the corporate office and the functional divisions that are involved in
business operation of the corporation are shown in the figure 4.3 below:
Figure 4.3 Inter-link between the corporate office and the functional divisions of
BRPL
Source: author
Functional divisions are attached to functional directors and divisional heads are reporting to
functional directors. In order to maintain and for continuous improvement in the business
activities the corporation formed two high level committees. First one is management
committee and another one is operation committee. Management committee is formed with
the members of consists of all functional directors and the divisional heads not below the
level deputy general manager (DGM). This committee conducted meeting once in every
month and the meeting is chaired by the C&MD. Operation committee is formed with the
members of consists of all functional directors and the divisional heads and departmental
heads. This committee is also conducted meeting once in every month and the C&MD or the
Company Secretariat Corporate & Strategic Planning
Director- Operation Director- Finance Director- Human Resources
Chairman & Managing Director
Finance Operation Project Marketing HR
Corporate Office

55
senior most director of the corporation chairs the meeting. The basic aims and objectives of
these meetings are to review the business strategies, business functions of the corporation and
to percolate the necessary information and the guidelines to the respective divisional and
departmental heads. These systems proved to be very effective in order to maintain timely
flow of information in both ways and in maintaining continuous improvement in business
functions operation.
4.3.3 Functional divisions and departments
Divisional heads that is reporting to respective functional directors heads functional divisions.
Each functional division are again divided into numbers of departments, which are headed by
the head of the departments. Inter linkage of the functional divisions; their departments along
with functional directors and their functions, responsibilities are detailed below:
4.3.3.1 Functional areas under Director Operation
Functional heads of productions, projects and marketing are reporting to director-operation.
Functional areas under director operation is shown in the figure 4.4 below:
Figure 4.4 Functional areas under Director Operation
Source: Author
Operation division basically consists of production sectors and its associated other
departments. Production sectors are refinery operation and petrochemicals operation including
PSF section. Refinery operation is responsible for the operation of refinery units. Refinery
units consists of two Crude Distillation Units (CDUCDU-II & I), Kerosene Treating Unit
(KTU), two Delayed Coker Units (DCU-I & DCU-II) and Coke Calcination Unit (CCU). In
addition to that refinery operation involves in utility services like cooling water, firewater,
drinking water, compressed air etc. BRPL is treating effluents in Waste Water Treatment
Plant (WWTP) and this treated water is further retreated in Tertiary Treatment Plant (TTP)
Technical
Services
Refinery Petrochemicals
Captive Power plant Materials & warehouse
Maintenance Environment &
Safety
Quality Control Fire Fighting
Tendering Oil Movement &
Storage
Operation
Planning &
Monitoring
Construction
Tendering Purchase
Central Design
Department
Project
Reginal
Marketing
Offices
Divisional
Marketing
Office
Marketing
Director Operation

56
and finally used as cooling water make-up. The basic philosophy of recycling treated water is
to reduce to raw water consumption and avoid land and water pollution and also to minimise
ground water table depletion. Refinery operational activities involve storage and handling of
crude oil to all the above operational activities and they are responsible for ensuring quantity
and quality of petroleum products, cooling water, compressed air, effluent etc.
Petrochemicals operation is responsible for operation of the petrochemicals units consists of
Xylene plant, DMT plant and PSF plant. PSF plant operation and maintenance are combined
together for the convenient of plant operation and maintenance. All the production units are
responsible for maintaining quality of the products as per ISO-9000 standard. On the job
training is a part and partial of the operation activities.
BRPL is having its own Captive Power Plant (CPP) with 3X 16 Mega Watts (MW) power
generation capacities in order to cater the power and utility steam requirements. In addition to
above one five MW diesel generating set (DG Set) also available as a stand by in order to
provide power supply for quick start-up of units during total power shut down or to fulfil the
emergency needs. CPP department is responsible for operational activities of above units.
Materials and ware house department (M&WH) is responsible for purchase, supply and
storage of equipments, spare parts, chemicals etc., requiring in plant operation and
maintenance. There responsibilities lies from collecting indents, floating enquiry, placement
of purchase order, ensuring timely supply materials in order to avoid any interruption in plant
operation as well as maintenance activities and to store it properly. M&WH department has to
ensure optimum stock of all necessary items so that inventory can be maintained at minimum.
Environment department is increasingly gaining importance, as industries are responsible
for maintaining stringent environmental standards. Safety is another important aspects, which
must be ensured in all fronts of activities of business functions. Environment and safety
department has the responsibility to ensure meeting the environmental standards as per ISO-
14001 and to ensure following of safety rules in all fronts. Similarly, fire fighting department
has the responsibility to fight with any fire and emergency situation in the plant. Both the
department are conducting training and awareness program in order to achieved their desired
goal.
Maintenance is a supportive division of production units. BRPL is having well-established
maintenance department. Maintenance is basically divided into four main departments
namely mechanical, electrical, and instrumentation and plant civil maintenance. These
departments are again sub-grouped based on the production and utilities units requirement as
refinery maintenance, petrochemicals maintenance, CPP maintenance, offsite & utilities
maintenance and central works-shop (CWS).
Maintenance group in all the units is responsible to carry out maintenance activities in their
respective areas. Central work shop (CWS) is a common place for all the maintenance groups
to carry out repair works. It consists of all mechanical, electrical and instruments sections.

57
Maintenance planning and preventive maintenance are also included within CWS. CWS is
basically supportive department of maintenance division.
BRPL is having well-equipped quality control department. This department monitors the
products quality and certify finish products before despatching to customers. Oil movement
and storage department is responsible for storing (intermediate and finish products), blending
and despatching to customers. This department maintains close contact with quality control
department in order to certify and delivery of products.
Tendering department involves in inviting and awarding tenders for the jobs related to plant
operation like house keeping contracts, mechanical, electrical, instrument and civil
maintenance contracts etc.
Technical services department is basically performing co-ordination job. This department is
basically grouped into two. Planning and co-ordination section is responsible for preparation
of production and product despatch planning. They are also responsible for collecting
information relating to plant operation, production, maintenance, products movement etc. and
to prepare MIS report for management appraisal. They are also responsible for
correspondence with ministry and various organisations in regards to plant operation. Another
section is process engineering. This section study the plant performance, conducted test run of
production units in association with operation department. They are responsible for providing
necessary technical suggestion in regards to operation of the plant. This section performs
energy audit in the plant and prepared analytical reports on monthly basis.
Project division consists of project planning and monitoring, tendering, purchase,
construction and central design department.
Project planning and monitoring department is responsible for development of project
planning networks and monitoring the project. In addition to above they are responsible for
preparation of annual project budget and help in indenting and procurement. Project planning
department deals with the consultant firms in order to ensure schedule progress of the project.
In order to appraise the project status, planning and monitoring department circulate monthly
MIS report to the management. This department does all correspondence with ministry in
regards to projects. The Project tendering department deals all tendering activities of the
projects. Purchase department deals with the purchase activities relating project. Project
construction department is sub-grouped to civil, mechanical, and electrical & instruments.
All the construction activities of projects and maintenance of township are dealt by this
department. Central design department (CDD) involves in designing of plant layout,
modification etc. As such existing project set-up is not adequate for handing major or mega
projects. Experience personnel from different departments are attached in the project division
in case such a situation.
Marketing division of BRPL deals with only petrochemicals products. IOC markets
petroleum products. The divisional marketing office is situated in at Dhaligaon, Assam along

58
with the corporate office. The company is operating its petrochemicals marketing business
from the divisional office and regional offices at Delhi, Mumbai, Coimbatore.
4.3.3.2 Functional areas under Director Finance
Functional heads of finance and account and enterprise resources planning (ERP) are
reporting to director-finance. Functional areas under director finance is shown in the figure
4.5 below:
Finance and account division consists of excise, establishment, welfare, sales- purchase-
taxation- insurance- provident fund, contract, oil account, internal audit, central account &
budgeting, miscellaneous accounting and regional account offices.
Excise department deals with the excise and customs, government taxes related matter of the
corporation. Establishment department deals with employees salary, loan, provident fund
gratuity, medical referral etc. Welfare deals with the welfare funds and expenses.
Figure 4.5 Functional areas under Director Finance
Source: Author
Sales- purchase-taxation-insurance-provident fund department deals with the payment
related to purchase and sales, statutory taxes, insurances and Provident Fund trust etc.
Contract department deals with payment to work contract. Oil account department deals
with calculation of crude oil supply and production. Based on the calculation of this
department all financial transaction of crude oil and products are made. Internal audit
department is authorised to conduct audit of all the accounts of the company. This
department is responsible for reporting any un-eventualities, malpractices, and irregularities in
accounting to the management. Central account and budgeting department is responsible
compilation and allocation of budget to all the department/ division of the corporation. This
Excise Establishment
Contracts Oil Account
Internal Audit WelFare
Central Accounts
&
Budget
Miscelleneous
Accounting
Sales, Purchase,
Taxation, Insurance,
Provident Fund
Regional Offices
Finance & Accounts Enterprise Resource Planning
(ERP)
Director-Finance

59
department prepared monthly MIS report regarding the companys expenditure in different
heads. They are also responsible for co-ordinating with government audit team.
Miscellaneous account department deals with the miscellaneous expenditure of the
company like travelling expenses, medical bills, impress money etc. and the regional account
offices deal with all the accounting activities connected to their regions.
Enterprise resource planning (ERP) recently introduced and the ERP project activities are
on going.
4.3.3.3 Functional areas under Director Human Resources
Functional heads of human resources division is reporting to Director (Human Resources).
The departments and their functional areas are shown in figure 4.6 below:
Personnel department deals with establishment, recruitment of manpower, employees
welfare, promotion transfer etc. This department is responsible for maintaining employees
personal records, statistics, their performance records etc. Administration department deals
with office and employees accommodation, canteen, liveries transportation etc. Industrial
relation and legal (IR & Legal) department deals with industrial relations/disputes, any legal
and policy matter of the company. Human resources development department (HRD)
conducts training, symposium, workshops etc., and public relation department liaisons with
public. This department is responsible for releasing companys journals, bulletins and
activities related to protocols and ceremonies and ceremonies of national importance.
Figure 4.6 Functional areas under Director Human Resources
Source: Author
Sports and community development deals with the employees sports, entertainment and
activities related to grand of funds to various organisations for the development of the
community as a social welfare measure. BRPL is having its hospital to take care of the health
Personnel Administration
Industrial Relation
&
Legal
Human
Resources
Development
Public Relation Sports &
Community
Development
Hospital Liaison
Offices
Director
(Human Resources)

60
of the employees and their family. Companys liaison offices are situated at Guwahati, New
Delhi, Kolkata and Mumbai.
Considering the nature of the organisation and its business function, the existing
organisational structure is adequate for smooth functioning.
4.3.4 Analysis of organisation culture
BRPL provides a stable environment in which employees can develop and exercise their
skills. The company has provided township to all the employees adjacent to the factory
premises. All essential infrastructure facilities like schools, hospitals, clubs, play ground,
parks, communication facilities, electricity, water etc. are available in the township.
Celebrating various festivals within the township by employees along with family with the
support of management is a distinctive feature of BRPL, Which help in building good inter-
personal relationship. People as an individual are rational and supportive to each other. Most
of the employees are working in the company for more than ten to fifteen years. The company
annually conducts long service award ceremony as a recognition and honour to employees for
their distinctive and loyal services to the company. Employees are skilled to their jobs due to
the fact that they are experience for long period and also the company recruits on the basis of
requirement in the jobs. Employees normally tend to stay in the organization due to stable
environment.

Management is concerned about the development in the business environment and always
adaptable to change. This may causes resentment among employees. Inter-departmental
relationship of the company is not very much applicable. Most often their rivalry affects the
performance of a department as well as individuals. This not only delays the whole
process but also damage the working environment. For example, most often plant operation
suffers due to different in opinion of operation and maintenance group. This may happen due
to various reasons but ultimately it may cause many problems such as equipment damages,
energy loss, and fire in the plant, product quality deterioration or even emergency shutdown
of the plant. In all are contribute to the losses.
4.3.5 Organisational processes
Planning and decision-making process of BRPL can be broadly divided into corporate and
business function level. Corporate planning and decision making process is strategic based on
the study of environment and the strength and weakness of the organisation however in
functional level it is tactical and operational. Management is basically following MBO for
organising, leading and controlling the organisation.
BRPL being an industry with more than thirty years of experience is well organised.
However, the company still need to improve in certain areas like performance evaluation of
individuals and comparing with another of same level is difficult task. Even though there are
criteria of evaluation but it depends on person-to-person, who does the evaluation. Different
departments perform different activities, similarly different individuals perform different

61
activities within the department and all the activities are important for different purposes,
therefore judging the performance of individuals become more complicated. So unless there is
a standard tool for measuring each and every activity and some how make it comparable to
each other, it is not possible to measure the performance of individuals. Measurement of
individual performance is important in order to maintain sound promotion policy, carrier
development or even for justify reward and punishment of individuals etc. Imperfect or wrong
performance judgment affects the work culture of the company therefore bringing
improvement in those areas is necessary.
It is some time seen un-uniform work distribution within the departments as well as
individuals in BRPL. Within the company, from one department to another or even person to
person in the same department, it is seen that someone is over loaded with his works and
some one is sitting idle. This is a cause for de-motivation and frustration. It can happen
due to unhealthy management practice i.e. manager may not know how to managed the
situation or his is least bordered. But such a situation easily destroys the work culture of the
company and its long run affect is serious.

The company is leading with no significant growth during last few years. The employees
strength of the company is 1800. Fresh recruitment of personal during last few years was
insignificant. In fact, The Company made a manpower assessment, which shows that the
existing manpower strength is higher compared to size of the company. In order to retrench
manpower, company has implemented voluntary retirement scheme (VRS) and it is partially
successful. Due to its location in the remote part of the country, have many disadvantages
especially in transportation of goods and products. However, the attitude of state and central
government as well as the public towards the company is good and the company enjoys the
status of one of the biggest public enterprise in the region. In fact, considering socio-
economical need of the region, the government of India relaxed the excise duty to the tune of
50% on petroleum fuel products to all the North Eastern refineries as a temporary
arrangement in order to keep the refineries operating and BRPL is one of the beneficiaries of
this government scheme.

The company has infrastructure for communication network, however the system is under
utilized or not properly utilized. For instance, to have an idea of day-to-day business
operations, all divisions/departments can be circulated MIS report in the standard formats,
identifying all the critical activities and critical issues. This can make the communication
system faster and helps in taking faster decision-making process and also reduces paper
consumption drastically. However, the reasons for under utilization of communication
network may be due to traditional, individual departments or managers have owned
application system and data lock in them causing islands of information in the organization.
Inadequate knowledge on computer operation in certain level of employees and lack of effort
in developing centralized information sharing system are also another reasons for under
utilization of this system.


62
Production units of BRPL are manned with long experienced executives and operators. From
the viewpoint sufficient operation and plant safety deployment of experienced personal is
desired. However, they are less exposed to other business function of the company and their
long period working in operation becomes the cause of monotony due to having no innovation
and newness. Existing maintenance groups are set-up based on separate operation plants.
Since the maintenance activities of plants are not uniform all the times, therefore the resources
allocated in some area remain un-utilized at the same time some area face shortage of
resources. This affects overall maintenance performance.

For measuring and to bring improvement in each of the activities, BRPL try to follow
standard method and bench marking. Standardization and benchmarking is done based on
comparison with some data like global or country average or with the industry that has
excellent performance records. If such data is not available, it is done based on in-house
analysis of time and resources utilization. However, there is not centralized effort to follow
the above system in BRPL and therefore most of the time the system is by-passed as a result,
performance and efficiency could not be judged properly and scope for further improvement
remains un-noticed.


63
CHAPTER 5
OIL INDUSTRY SCENARIO
5.1 GLOBAL OIL INDUSTRY SCENARIO
As at the end 1999, the world had proven oil reserves of a little over 1,055 million barrels
(about 140,900 MMT) while that of gas, a little less than 140 trillion cubic meters. At the
current rate of production, oil reserves are likely to last for about 40 years and natural gas
reserves for about 65 years. The reserves are however unevenly distributed with the Middle
East countries together holding 65% of oil and 34% of the gas reserves. Oil & Gas constitute
a significant 63% of the primary energy consumption. The situation in Asia/ Australia is
different with coal still remaining the primary source of energy. However, the scenario is
rapidly changing, for instance in the last decade, oil & gas consumption has grown at more
than 70% in the Asia-Pacific region vis--vis 15% in the rest of the world (excluding the
former Soviet Union, where the growth rate has been negative). The Asia pacific region is
thus gaining importance in the oil & gas map, with India and China together accounting
for 47.50% of the total demand in this region. Average per capita consumption of energy
vis--vis hydrocarbons (kgOE) in the world and the Asia Pacific region and some of the
important European countries are shown in the table 5.1
Table 5.1: The Average per capita consumption of energy vis--vis hydrocarbons
(kgOE)

Country /Region Primary Energy Hydro-Carbons
World 1454 927
India 285 113
China 688 169
Pakistan 264 231
Bangladesh 81 80
Japan 3962 2520
U.K. 3856 2719
Germany 4102 2539
Source: British Petroleum Statistics -1998
In the last decade, natural gas has taken the lead in growth and in the emerging energy
scenario, it is seen as an environment-friendly substitute for relatively scarcer oil.
Consumption of natural gas has grown by more than 26% vis--vis 15% in consumption of
oil. Considering the fact that oil & gas would be available in the foreseeable future without
any constraint, oil & gas would continue to be the most widely traded energy source. World
oil trade is estimated to be 38 million barrels a day. The inherent advantages of oil & gas in

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terms of versatility ease in handling & transport and adaptability to new environmental
standards would make it the most preferred fuel. As of 1999, the world's total refining
capacity was close to 82,861 thousand barrels a day. The refinery throughput in the year 1999
stood at 71,126 thousand barrels a day, representing an average capacity utilization of about
85%. Oil and gas prices are closely linked to the policies and capacity utilization of OPEC.
Oil prices, which were reasonably flat at about USD 3 per bbl, till early seventies spiked to
more than USD10 per bbl in 1973-74 and again to more than USD 25 per bbl in 1979-80. The
prices have thereafter hovered between USD 15-25 per bbl but for a short blip in 1990 due to
Iraqi invasion Kuwait. In 1998, oil prices crashed once again to a decade low of USD 11 per
bbl due to excess capacity, poor off-take and an overall slowdown in world economies.
Subsequently OPEC reduced crude output, which escalated prices from USD 11 per bbl in
1998 to USD 32 per bbl in June 2000. Later though OPEC increased production twice (by
1.45mbpd in September '99 and 0.7mbpd in June'00), the quantum was insufficient to tame
prices. The world market now banks on increased supply from non-OPEC countries namely
Mexico, Oman and Norway. Natural gas prices on the other hand have also increased from
USD1.5-2.5 per mbtu in 1998 to USD 4.36 per mbtu in June 2000. Huge disparities exist in
the price of natural gas not only between countries but also within a country.

5.2 OIL INDUSTRY SCENARIO IN INDIA
Excluding the non-commercial energy sources like wood and animal waste, the primary
energy consumption in India was 285 kgOE in 1998 as against 5800 kgOE in North America.
Coal continues to be most important source of energy, constituting more than 56% of the total
energy consumption though there is a conscious shift towards oil as alternate fuel. The over
all demand for oil products increased from 74 MMTPA in 1996 to 90 MMTPA in 2000. At
current levels the estimated demand by 2005 is expected to be around 114 MTPA while the
refining capacity would be around 155 MMTPA. The Indian downstream (refining and
marketing) oil industry promises to be one of the most attractive growth markets in the world,
in the coming decades. It is emphasized that investment of Rs. 2500 billion in the
refining, Rs. 210 billion for pipelines and Rs. 1350 billion in the marketing
infrastructure would be required by 2025. The Hydrocarbon vision 2025 formulated by the
Ministry of Petroleum & Natural Gas in 1999 emphasized 90% self-sufficiency in middle
distillate (Diesel/kerosene group) in the sector with an appropriate mix of national oil
companies, foreign players and private Indian players so as to develop a globally competitive
industry. According to this report, the country would require 277 MMTPA petroleum products
and 358 MMT refining capacity is to be build up in order to achieve 90 % self-sufficiency.
Corresponding increase in pipeline and marketing infrastructure would also be required.
There are 26 sedimentary basins in India covering an area of 1.78 million sq km, of which
1.46 million sq km are onshore and 0.32 million sq km are offshore in water with up to 200
meters in depth. The total prognosticated reserves are estimated at 20 bbl of oil, but till date
only 27% of this has been discovered. A total of 5.4 bbl of oil (about 732 million metric
tonne) has thus been discovered, with the annual production in the region accounting to 35-40

65
MMTPA. These reserves are likely to last for the next 20 years. However, the current
production level of 35 MMTPA would be highly inadequate, especially once the planned
refining capacities come on stream a large portion of the crude would need to be imported. As
of 1995, the proved gas reserves were about 660 billion cubic meters (BCM) while production
as of 1999 was 27 BCM. At current production levels these reserves are likely to last for
about 30 years.
Prior to April 2002, the price of petroleum products was controlled under the Administered
Price Mechanism (APM). Since abolition of the APM, subsidies on these products are being
progressively reduced thus exposing Indian companies to global market forces. National oil
companies are divesting equity to the private sector in a phased manner.
5.2.1 Refining capacities
The refining capacity of the country has increased from 69.14 MMTPA in financial year 1999
to 109 MMTPA as of January 2000 i.e about 2.7% of the world refining capacity. Currently
there are about 18 refineries are in operation with total refining capacity of about 112.34
MMTPA in India. Refineries and their processing capacities as shown in table 5.2 below;
Table 5.2 Refineries and their processing capacity of India (Year 2003)

Refinery Refining capacity (MMTPA)
(a) Public/ Joint Sector
IOC, Guwahati 1.00
IOC, Barauni 4.20
IOC, Gujarat 13.70
IOC Haldia 4.60
IOC, Mathura 8.00
IOC, Digboi 0.65
IOC, Panipat 6.00
HPCL, Mumbai 5.50
HPCL, Visakh 4.50
BPCL, Mumbai 6.90
MRL, Chennai 6.50
CRL, Cochin 7.50
BRPL, Assam 2.35
MRL, Narimanam 0.50
NRL, Numaligarh 3.00
ONGC, Tatipaka 0.08
MRPL, Mangalore 9.69
Total (a) 85.42
(b) Private sector
RPL, Jamnagar 27.00
Total (a+b) 112.34

Source: http://petroleum.nic.in/psinst.htm

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Refineries with lower processing capacities are facing problem in competing with the
refineries of higher processing capacities. Moreover, these refineries are older and still
operating on comparatively older technology. Refining capacity of BRPL is 2.35 MMTPA,
which is only 2.09 percent on the existing total refining capacity in India. Accept few, most of
the refineries are bigger compared to BRPL. Recent refineries are built with latest technology
and they are bigger in size. Reliance Petrochemicals Limited (RPL), a private sector concern
has set up refinery with 27.0 MMTPA capacity with latest state of art technology. Competing
with such giant private competitor is become a major concern to Indian public sector
refineries now.
5.2.2 Consumption pattern of petroleum products
Petroleum products play a vital role in every industry in the world. The present consumption
pattern of important petroleum products in India is shown in the tables 5.3 below.
5.2.2.1 Liquefied Petroleum Gas (LPG) consumption pattern in India
Consumption of LPG for using as domestic cooking fuel is increasing due to strict
government restriction for cutting woods and scarcity of other non-commercial fuel to use as
a domestic cooking fuel. Table 5.3 shows the LPG consumption pattern in India
Table 5.3 LPG consumption pattern in India (Basis: Year 2000)
Particulars Quantity in '000 tonnes % consumption
Domestic 2762 80.4
Commercial 654 19.1
Others 18 0.5
Total Consumption 3434 100
Source: CMIE

Domestic consumption of LPG is 80% of the total consumption. The population of the
country is about one billion and only 38 million people are using LPG. This indicates that the
consumption of LPG in the domestic front is likely to be increased in near future.

5.2.2.2 Naphtha consumption pattern in India
Naphtha consists of paraffin, naphthanic and aromatic hydrocarbons. High aromatic naphtha
are generally used by fertilizer industries and low aromatic by petrochemical industries. The
consumption pattern of naphtha in India is shown in the table 5.4 below:


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Table 5.4 Naphtha consumption pattern in India (Basis: Year 2000)

Particulars Quantity in '000 tonnes % consumption
Petrochemicals 831 24.4
Fertilizers 2495 73.4
Others 74 2.2
Total Consumption 3400 100
Source: CMIE
Use of naphtha in the fertiliser sector is very high compared to other sectors due to high
demand of fertilizer in the agriculture sector.
5.2.2.3 High Speed Diesel (HSD) consumption pattern in India
The consumption pattern of HSD in India is shown in the table 5.5 below:
Table 5.5 HSD consumption pattern in India (Basis: Year 2000)

Particulars Quantity in '000 tonnes % consumption
Transport 24742 47.5
Roads 2156 4.1
Railways 1398 2.7
Other transports 21188 40.7
Plantation 621 1.2
Power 229 0.4
Mining & Quarry 585 1.1
Iron& steel 106 0.2
Textile 227 0.5
Engineering 172 0.3
Others 693 1.3
Total Consumption 52117 100
Source: CMIE

Consumption pattern shows that HSD is basically used as a fuel for different transports (Rail,
road, water transport). Use in other sector is negligible. Transport industry in India is growing
faster and accordingly consumption of HSD is also increasing.





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5.2.2.4 Light Diesel Oil (LDO) consumption pattern in India
LDO is relatively cheaper petroleum product compared to HSD. Consumption pattern of LDO
in India is shown in the table 5.6 below
Table 5.6 LDO consumption pattern in India (Basis: Year 2000)

Particulars Quantity in '000 tonnes % consumption
Transport 83 7.4
Shipping 62 5.5
Other transports 21 1.9
Plantation 35 3.1
Power 165 14.7
Misc. services 441 39.1
Chemicals 144 12.8
Engineering 124 11.0
Ceramics 34 3.0
Cement 17 1.5
Total Consumption 1126 100
Source: CMIE
LDO is used as fuel in almost every industrial sector. However, power, chemical and
engineering industries are the major user of LDO. Because of comparatively lower price to
HSD its use for miscellaneous services is high.
5.2.2.5 Low Sulphur Heavy Stock (LSHS) consumption pattern in India
HSLS is heavier and comparatively relaxed quality petroleum product. Price of LSHS is
generally lower compared to HSD and LDO. Use of LSHS in the thermal power plants and
similar other small power generating plant is popular in India particularly due to its lower
price compared to other fuels. With the growth of power requirement the consumption of
LSHS is also increasing in the power sector. Fertilizer is another sector where LSHS is
extensively used in the country due to the same reason. Fertilizer is also a growing sector in
India and therefore consumption of LSHS in this sector is increasing .Use of LSHS in other
sectors like chemicals and textile are also significant. Other use of LSHS is in plantation, iron
and steel industries and various miscellaneous services
The consumption pattern of LSHS in India is shown in the table 5.7 below.



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Table 5.7 LSHS consumption pattern in India (Basis: Year 2000)
Particulars Quantity in '000 tonnes % consumption
Transport 2 0
Plantation 27 0.7
Power 1624 40.1
Misc. services 141 3.5
Fertilizers 1001 24.7
Chemicals 483 11.9
Textile 276 6.8
Iron& steel 102 2.5
Others 396 9.8
Total Consumption 4052 100
Source: CMIE
5.2.2.6 Furnace Oil (FO) consumption pattern in India
FO is used in various sectors. However fertilizer sector is the major user of FO. The
consumption pattern of FO in India is shown in the table 5.8 below
Table 5.8 FO consumption pattern in India (Basis: Year 2000)
Particulars Quantity in '000 tonnes % consumption
Transport 440 8.5
Shipping 323 6.2
Other transport 117 2.3
Plantation 188 3.6
Power 580 11.2
Misc. services 685 13.2
Fertilizers 1507 29.0
Chemicals 563 10.9
Textile 375 7.2
Iron& steel 409 7.9
Total Consumption 5187 100
Source: CMIE
FO and LSHS are heavy petroleum products relatively similar it their quality. They can be
used as replacement to one another. However FO is widely used in different sectors but most
predominantly in fertilizers, power and chemicals industries.

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5.2.2.7 Year-wise consumption of petroleum products in India

Overall consumption of petroleum products (light distillate, middle distillate and heavy
distillate) is increasing steadily at a steady rate (CAGR 5 %) during 1996 to 2000. Similar
trend is continuing. Looking at this trend Indian petroleum market is promising. Year-wise
consumption of petroleum products (Light, middle and heavy distillate) in India during 1996
to 2000 is shown in the table 5.9 below. For detail product-wise consumption of petroleum
products in India refer annexure 1.

Table 5.9 Year-wise consumption of petroleum products in India
(000 Tonnes)

Year to 31 March 1996 1997 1998 1999 2000
CAGR
(%)
Light distillates 13144 14384 15742 17958 20473 11.7
Middle distillates 45459 48544 49716 51686 54259 4.5
Heavy distillates 13915 14296 14380 15122 15919 3.4
Imports by Private Party 0 1944 4452 5796 5639 30.5
Total demand 72518 79168 84290 90562 96290 5.0
Source: Ministry of Petroleum & Natural Gas
The table 5.9 indicates that the consumption average growth rate (CAGR) of light distillate is
11.7 % annually. Trend shows constant and steady increase of consumption during the year
1996 to 2000. The most prominent growth in consumption is naphtha (21.4 %) and LPG
(11.9%), while it is 6% in case of MS.

CAGR of middle distillate is 4.5 % annually. Trend shows constant and steady increase of
consumption during the year 1996 to 2000. All middle distillate products consumption are
increasing, however most prominent growth in consumption is SKO (3.6%), HSD (5.1%) and
LDO (3.6%).

CAGR of heavy distillate is 3.4 % annually. Trend shows constant and steady increase of
consumption of all heavy distillate products. Most prominent growth in consumption is
bitumen (9.5 %), lubes (6.5 %) and LSHS (3.3 %).

5.2.3 Year-wise imports of crude oil and petroleum products in India
Countrys demand for crude oil and petroleum oil and lubricant (POL) products are more than
production. Crude oil import trend of India shows overall annual growth of 13.54 during the
years 1995 to 2000, however, the import of POL in the decreasing trend. Reason for higher
demand of crude oil is due to increase in consumption of petroleum products, however,
reduction in import of POL products is due to increase in overall refining capacity in the
country during recent years. This indicates that overall demand of the petroleum products in

71
the country is increasing. Simultaneously refining capacity of the of the country is also
increasing but still it has to be increased. Table 5.10 shows year-wise import of crude oil and
POL (Light, middle and heavy distillate) products from different countries during 1995 to
2000.
Table 5.10 Year-wise imports of crude oil and petroleum products in India

(000 tonnes)
Year to 31 March 1995-96 1996-97 1997-98 1998-99 1999-00
(A) Crude Oil 27342 33906 34494 39808 44989
POL Products
Light Distillates 1117 1490 1422 1947 1618
Middle Distillates 17950 18037 17942 16308 10900
Heavy Distillates 1267 738 166 525 549
(B) Total POL Products 20334 20265 19530 18780 13067
Total (A+B) 47676 54171 54024 58588 58056
Source: Ministry of Petroleum & natural Gas
Import of crude oil was ever increasing, however overall import was low during 1999-00
compared to 1998-99 due to reduction in import quantity of light and middle distillate
products. For detail imports of POL products (product-wise) refer annexure 2.
5.2.4 Year-wise export of crude oil and petroleum products
Table 5.11 below shows year-wise export of crude oil and finished petroleum products to
different countries. India never was exported crude oil. Export of light distillate and heavy
distillate products is in decreasing trend due to increase of domestic market demand. Export
of middle distillate products fairly remains constant. The trend also indicative of present and
future exports potential of POL products from India.
Table 5.11 Year-wise exports of crude oil and petroleum products in India
('000 tonnes)
Item ('000 tonnes) 1995-96 1996-97 1997-98 1998-99 1999-00
(A) Crude Oil 0 0 0 0 0
POL Products

Light. Distillates 3017 2643 2098 779 284
Middle. Distillates 396 437 491 531 586
Heavy. Distillates 22 82 361 91 29
(B) Total POL Products 3435 3162 2950 1401 899
Total (A+B) 3435 3162 2950 1401 899
Source: Ministry of Petroleum &Natural Gas

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CHAPTER 6

SWOT ANALYSIS OF BRPL

6.1 BRIEF ON SWOT ANALYSIS

BRPL being associated with the oil refining business, there are certain common factors that
are influencing in the overall business performance to all the players. Crude oil is non-
renewable natural resources found in the earth crust on which all refineries are dependable.
World crude oil reserve is limited and it is predictable that with the present pace of
consumption pattern it may last for about another 40/50 years. Although the price of crude oil
is internationally standardized but due to its limited availability and having no other
alternative, price fluctuated frequently base on supply and demand characteristics.
Subsequently price of products also fluctuating based on supply and demand characteristics.

The upstream industries i.e. the suppliers always enjoy advantage of market in terms of
pricing and quality of crude oil. Refinery products are generally standardized and there is
not much scope for product innovation and differentiation from the viewpoint of its
quality and patterns. However, demand of petroleum products is all the time high, because
of having no alternative to customers. Petroleum refining business involves huge capital
investment therefore any decision for investment cannot be taken in short term basis even
though changing business environment is quite visible.

In chapter 4, business and organization analysis of BRPL has been made in detail. Business
analysis includes analysis of purchasing, production, and sales, financing and personal.
Analysis of purchasing includes the various practices adopted in BRPL and advantages and
disadvantages of existing practices. Analysis of production covers physical performance and
yield pattern of refinery during the year 1998 to 2003. The analysis covers various reasons for
capacity under utilization, technological bottleneck and effect of fuel and loss in the
profitability of the refinery. Analysis of sales covers trends of products sales during 1998 to
2003 and its contribution in the profit and loss of the company. The analysis also includes
demand and supply trend in India. Financial analysis covers current, debt-equity and equity
assets analysis for the years 1998 to 2003 to find out the liquidity, assets-liability and
financial stability position of the company. Analysis of personals includes analysis of
personal their behavior, structure and relationship with the organization.

Analysis of profitability of BRPL during 1998 to 2003 includes analysis of ROR and ROA to
find out the return of assets of the company. In the process analysis of net profit ratio and
inventory turnover analysis is also made to find out the net earnings on net sales and operating
efficiency of the company.


73
In the chapter, analysis of organization is made which includes analysis of organizational
structure, culture and process. In the organizational structure corporate governance and
formation of divisions and department and their functions are discussed. Under organizational
culture, prevailing organizational cultural environment, their positive and negative impacts on
organization are discussed. Under organizational process such as planning, organizing,
leading and controlling of BRPL have been discussed.

In chapter 5, we are trying to analysis the external environment in connection with oil
industries. This includes global oil industry scenario and its present trend. Finally, discussion
on present oil industry scenario in India has been made. Under oil industries in India,
discussion has been made on refining capacity of the country, technology, supply-demand and
export-import of crude oil and POL products.

Considering all the above factors SWOT matrix of BRPL is prepared.


6.2 SWOT MATRIX OF BRPL

Strengths are the following:
Infrastructure facilities available for receiving crude oil from Upper Assam oil field,
Krishna - Godavari basin and imported crude oil from Haldia Port.
Developed adequate infrastructure facilities for delivery of products by road, rail and
pipeline
Developed infrastructure for internal and external communication
Own power generation to cater the requirement and not dependent on external power
suppliers
Work force of the company are skilled to their jobs
Employees are co-operative and rational
Employees resides in well developed township, which is just near by the factory
Present financial condition of the company is in improving trend
Holding ISO 9000 certificate for its quality products
Holding ISO 14001 certificate for maintaining better environment management
practices.
Own well-developed quality control department for quality testing and certifying of
products
Management is committed for brining improvement
Weaknesses as a result of our analysis:
The company has relatively lower crude processing capacity
Technology is relatively older compared to new entrants
Lower capacity utilisation due to lower crude allocation from upper Assam oil fields
and Krishna Godavari basin, product containment problem or forced plants shutdown
due to technical reasons

74
Crude oil and products pipelines are owned by other companies
High cost involvement in transportation of crude oil due to its distance from the oil
fields.
Petroleum oil marketing is dependable to Indian Oil
Geographical location of the plant is not favourable for transportation of raw materials
and products
Inter departmental rivalry
Improper maintenance planning and resources mobilisation affect the performance of
maintenance activities
Employees do not consider energy conservation/optimisation activities as a part of
their jobs.
Method of standardisation or system of bench marking of activities is not always
based on time and manpower evaluation resulting un-uniform work distribution to
individuals, which affects the work culture and also affecting overall companys
performance
No standardise tools applied for measuring performance of individuals
System does not take care of reward and punishment
Majority of middle management personals are computer illiterate
Existing online information system is incapable of timely communication of important
business information to the management. Management has to depend on delayed
information of furnished by divisional/ departmental heads leading to delay in
decision-making process
Employees strength is higher compared to size of the company
Annual performance appraisal system most often does not reflect actual performance
of individuals.
Opportunities are the following:
High potential for market growth in India
High potential for importing products as the refinery is situated at the close vicinity of
Bhutan, Bangladesh and Nepal
Marketing tie-up for petroleum products with Indian Oil
Company is a subsidiary to Indian Oil Corporation, which is holding major market
share in refining as well as in marketing sectors of petroleum products.
Public image to the company is good.
Company is one of the biggest public enterprises in the region.
Cheap labour force available
Attitude of central as well as state government towards the company is favourable.
Government of India relaxed excise duty on petroleum fuel products to the tune of
50% as a temporary arrangement in order to keep the refinery operating.
Major threats are the following:
Competitors are giants

75
Refinery is located in flood-ridden area.
On and off political disturbance in the region
Threat from new entrants
Stringent environmental regulation
New technology adapted by the competitors
Market driven pricing mechanism
SWOT analysis of BRPL reveals that the company has adequate infrastructure facilities for
supply of crude oil and dispatch of finish petroleum products by all available modes of
transport (rail, road and pipeline). Even though the company does not have its own marketing
network for selling or distribution of petroleum products but marketing tie-up with Indian Oil,
which is enjoying biggest market share in petroleum refining and marketing business in
INDA, is providing the company a great advantage. In fact BRPL being the subsidiary to
Indian Oil, marketing tie-up is a good deal. The company has qualified long experienced
skilled and rational work force. As a welfare measure of employees, the company provided
well-developed township facilities with hospital and other recreational facilities like clubs,
canteen, parks, playgrounds etc. The companys medical policy for the employees and their
family is attractive. All these facilities hold good for retaining experience work force of the
company.

Petroleum refining is a continuous process and any interruption in the operation causes
serious loss to the company. Uninterrupted and stable supply of electricity is essential for
continuous refinery operation. To avoid such situation, the company has developed own
captive power plant (CPP), which is adequate to cater the power and steam requirement for
entire refinery and township. The company is holding ISO-9000 and ISO-14001 certificate
for its products quality and environment friendly industry. Attitude of state and central
government as well as the public towards the company is good and enjoy the status of one of
the biggest public enterprise in the region. However, the refining capacity of the company is
2.35 MMPTA only, which is 2.09 percent of total existing refining capacity of the country.
The company has never processed oil in full capacity. The basic cause for capacity under-
utilization was due to shortage of crude oil and forced shut down of the plants due to
products containment problem or technical reasons. Further no significant growth/expansion
in the business during last few years and resulting stagnation in promotion and employees
personal development. Processing cost of the refinery is higher compared to new refineries
with higher processing capacity and new technology. Even though infrastructure facilities for
supply of crude oil is available but the transportation cost of crude oil is still higher due its
distance from the supply points. Transportation of others goods and supply of finished
products also time to time interrupted due to flood and on and off political disturbance in the
region. Geographical location of the industry is not favorable for transportation of goods.
Stringent environmental standards are another threat on which company has already invested
a huge sum of money and still need to be invested more in order to comply with the continual
upgraded environmental standards.


76
BRPL has never been achieved full capacity utilization in the history. Past records shows that
the basic reasons for lower capacity utilization were primarily due to shortage of crude oil
and forced shut down of the plants on account of products containment problem or due to
technical failure.

Energy conservation and optimization in consumption is one of the most important aspects,
which has direct impact to profit, and loss of the company. BRPL has put many efforts to
make most energy efficient plant by way of optimization and brining awareness among the
employees. A considerable amount has already invested but still there is scope for
improvement.

The company has infrastructure for communication network, however the system is under
utilized or not properly utilized. For instance, to have an idea of day-to-day business
operations, all divisions/departments can be circulated MIS report in the standard formats,
identifying all the critical activities and critical issues. This can make the communication
system faster and helps in taking faster decision-making process and also reduces paper
consumption drastically. However, the reasons for under utilization of communication
network may be inadequate knowledge on computer operation in certain level of employees
and also may be due to lack of centralized effort to develop a system.

Within the maintenance groups, due to improper planning or may be due to existing set-up of
separate maintenance groups for separate operation plants, resources utilization is not
uniform. In some area resources remain un-utilized but at the same time some area face
shortage of resources. This affects overall maintenance performance.

For measuring and to bring improvement in each of the activities, one must follow standard
method and bench marking. Standardization and bench marking should be done based on
comparison with some data like global or country average or with the industry that has
excellent performance records. If such data is not available, it should be done based on in-
house analysis of time and resources utilization. However, most of the time BRPL does not
follow such system, as a result, performance and efficiency could not be judged properly and
scope for further improvement remains un-noticed.

Un-uniform work distribution to individuals harms the company in many ways. Within the
same company, from one department to another or even person to person in the same
department, it is seen that someone is over loaded with his works and some one is sitting idle.
This is a cause for de-motivation of the employees those who are really hard working. It can
happen due to unhealthy management practice i.e. manager may not know how to managed
the situation or his is least bordered. But such a situation easily destroys the work culture of
the company and its long run affect is serious.

Performance evaluation of individuals and comparing with another of same level is difficult
task. Even though there are criteria of evaluation but it depends on person-to-person, who
does the evaluation. Different departments perform different activities, similarly different

77
individuals perform different activities within the department and all the activities are
important for different purposes, therefore judging the performance of individuals become
more complicated. So unless there is a standard tool for measuring each and every activity
and some how make it comparable to each other, it is not possible to measure the performance
of individuals. Measurement of individual performance is important in order to maintain
sound promotion policy, carrier development or even for justify reward and punishment of
individuals etc. Imperfect or wrong performance judgment affects the work culture of the
company. BRPL still to think and bring improvement in this area.

Most of the problem is related to system improvement, which can be handled by proper
management practices. However, some investment in restructuring and system atomization
also involve in certain areas. Based on the above analysis, the measures that need to be taken
to bring overall improvement in the profitability of the company are discussed in chapter 7.


78
CHAPTER 7

PROPOSED PROFIT IMPROVEMENT MEASURES IN BRPL

In chapter 6, we have determined and analyzed about the strength, weakness, opportunity and
threats (SWOT analysis) of BRPL. The analysis shows many interesting areas where
company can bring improvement by adopting various approaches in the business function. In
this chapter, I will try to discuss about how to bring improvement on the issues discussed in
the previous chapter by developing methodology, which can help in eliminating the problems
and improve profitability of BRPL. Best on the analysis, profit improvement program of
BRPL should involve the following:

Maximization of capacity utilization
Energy optimization,
Process optimization
Product optimization
Maintenance Management
System automation
Best human resources management.

A model of profit improvement program of BRPL is derived as shown in figure 7.1 below:

Figure 7.1 Model of profit improvement programme in BRPL

















Source: Author

Profit
Improvement
Program
Maximize
Capacity
Utilization
Maintenance
Management
Best Human
Resources
Management
System
Automation
Product Mix
Optimization
Process
Optimization
Energy
Optimization

79
Correct and systematic approach on profitability improvement programs can help in achieving
desired goal. An approach to profitability improvement programs and their possible
implementation in BRPL is discussed below. In these areas we can expect most benefits in a
shorter period of time.


7.1 MAXIMIZATION OF CAPACITY UTILIZATION

Lower capacity utilization is directly affecting the profitability of the company. BRPL has
never been achieved full capacity utilization in the history. Past records shows that the basic
reasons for lower capacity utilization was primarily due to shortage of crude oil on account
of lower allocation from Upper Assam oil fields as well as from Krishna Godavari basin.
BRPL stopped importing crude oil due to comparatively higher costs also one of the reasons
for capacity under-utilization. Forced shut down of the plants due to products containment
problem or technical reasons also another reasons. To achieve full capacity utilization of the
plants, BRPL has to emphasize on the following three points:

Ensure availability of crude oil
Products containment problem should be avoided
Emergency plant shutdown should be avoided

In order to cater the problems and to maximize the capacity utilization of the plants, BRPL
can take the following measures:

Supply of crude oil from all possible sources i.e. Upper Assam oil fields, Krishna
Godavari basin and imported crude oil should be explored in order to bring maximum
crude oil, limiting to its capacity of 2.35 MMTPA.
Adequate fund should be kept reserved against crude oil so that supply is not
interrupted in any eventuality.
A realistic annual production and dispatch plan with month wise breakup should be
prepared in line with the existing capacity of the plants. While preparing annual
production and dispatch plan the following points should be considered:
o Study the past history of Indian petroleum market
o Make a projection of future market demand (product-wise) based on the
previous years annual market growth rate
o Study the seasonal fluctuation of products demand in India; monthly
processing plan should be made accordingly.
o Production and dispatches should be planned in such a manner, so that
product containment problem can be avoided. Try to maintain optimum
inventory build-up.
Deviation from planning should be analyzed and necessary corrective action should
be taken to minimize it.

80
Focus on maintaining good condition of the plants by best operation and maintenance
practices in order to avoid forced shutdown due to technical reasons.
Condition monitoring of the plant should be improved in order to maintain sound
condition of the plant and to take all precautionary measures before the situation of
force shutdown arises.

Best operational practice and products and process optimization process are synonymous,
which will be discussed under this heading on and off. However, best maintenance practices
will be discussed subsequently under improvements of maintenance management in this
chapter.


7.2 ENERGY OPTIMISATION

Refinery is an energy intensive industry, where electricity, steam, fuel oil & gas are used as
the main sources of energy. In BRPL, fuel oil & gas are produced as by products in the
refinery. Fuel oil and gas are used as a heating medium of boilers in the captive power plant
(CPP) to generate steam and in the furnaces of process plant to heat the hydrocarbon to
accomplish the distillation process. Steam generated in the boiler is used to run steam turbine
of CPP to produce electricity. Part of the generated steam is used to meet the requirement in
different process plants and utility areas. Electricity is used for lighting, Air conditioning,
running of motors, pumps, compressors etc. As the basic source of energy is hydrocarbon
(petroleum oil) only, saving in energy directly contributes to reduction of operational costs
and minimize fuel and loss (OFL) and thereby improve profitability of the company. An
assessment made in BRPL shows that one percent reduction in OFL contributes rupees
40 millions to the company.

Implementation of energy optimization program needs systematic approach, which involves
the following steps:

Identification of areas of main energy consumption
Identification of areas of main energy losses
Analysis of causes of energy losses
Estimate of the losses
Find measures for eliminating energy losses
Estimate cost involvement
Design a program for continual improvement
Take decision for implementation

Unless persons have knowledge about the area where the energy is consumed, what is
consumption pattern, whether it is as per normal compared to national or international
standard or not. What are areas where excess energy is consumed, what might be the causes
and what is the quantum of losses? It is not possible to find out a solution for eliminating the

81
loss and to design a continual improvement program. Energy optimization programs should
be easily understandable and can bring improvement by best operational, maintenance and
human resources management practices within the existing costs of business operation.

The approach that needs to be taken to find out the area and causes of energy losses and the
action to be taken for elimination is shown in figure 7.2 below. However, this approach is
exclusively designed for BRPL and may not fit to other refineries.

Figure 7.2 Systematic energy optimization approach

Energy Area of
consumption
Causes of excess energy
consumption
Measures for elimination
losses
Lighting, fan,
etc.
Use of high energy intensive
lighting accessories
Use of light and fan carelessly
Improper fittings and
connection

Use energy efficient
electric accessories,
equipments at home
and offices etc.
Replace improper
fittings and loose
electrical connection
Conduct awareness
program on energy
conservation
Running of
motor/
compressor
Use of energy intensive
pumps, motors, compressors
etc.
Improper maintenance of
pumps, motors and
compressors
Running of pumps, motors,
compressors etc. during non-
productive hours

Replace energy
intensive pumps,
motors, compressors
etc.
Proper lubrication of
pumps, motors and
compressors bearings
Stop non-productive
running of pumps,
motors, compressors
etc.
Running of
Air Condition
ing systems
Use of air conditioning system
in non-air tied room

Make air condition
room air tied.

Electricity
Running of
computers,
other home
appliances,
office
equipments,
etc.
Running of computers, office
equipments etc. during non-
productive hours.

Conduct awareness
program and try to
Cultivate habit of
energy saving among
employees

82
Electric
heating
systems
(geyser,
heater etc.)
Running heating system
during non-productive hour
Avoid running of
heating systems
during non- product-
ive hour.
Conduct awareness
program
Running of
other
electrical
equipments /
tools etc
Improper maintenance of
equipments/ tools
Running equipments during
non-productive hour
Maintenance of
equipments/ tools as
per recommendation.
Avoid running of
equipments/ tools
during non- product-
ive hour.
Steam Process plant Steam leakage inside process
plant
Un economized use of steam
for equipment heating, oily
surface cleaning etc.
Improper steam line insulation
Use of excess steams in the
burner of furnaces and boilers.
Excessive use of steam in
other process areas
Improper condensate draining
system

Inspection and timely
maintenance for
arresting steam
leakage.
Equipment heating
with steam should be
constantly monitored
While cleaning oily
surfaces, steam line
should not be kept
open unattended.
Use of proper
insulation materials
during construction
and during repairs.
Proper atomization of
burners in boilers and
furnaces
Use steam optimally in
the production
processes.
Use proper and
efficient steam traps.
Non-functioned steam
traps should be
replaced immediately.
Continuation of figure 7.2

83
Running of
Steam
Turbine in
power plant
Steam leakage inside power
plant
Excess use of steam in the
Turbine
Improper steam line insulation

Inspection and timely
maintenance for
arresting steam
leakage.
Optimize use of steam
in the Turbine
Steam lines should be
insulated properly
during construction
and during repairs.
Crude and
products
heating in the
tanks
Line loss
Leakage in steam lines
Improper insulation
Improper condensate draining
system


Design optimal size
and lengths of steam
lines during
construction phase
Inspection and timely
maintenance for
arresting steam
leakage.
Use of proper
insulation materials
during construction
and during repairs.
Use proper and
efficient steam traps.
Non-functioned steam
traps should be
replaced immediately.
Continuation of figure 7.2

84
Scaling inside heating coils
Improper insulation of
heaters
Excessive soot deposition in
the chimney
Poor maintenance of burners
Improper atomization of
burners

Scaling inside the
heating coils of boilers
and furnaces should be
removed periodically
during maintenance.
Insulation inside the
boilers and furnaces
should be maintained
as per industrial
standard.
Prepare schedule for
blown off deposited
soot from the chimney
of boilers and furnaces
and implement strictly.
Make a schedule for
burner cleaning and
implement strictly.
Atomized burners
properly.
Fuel oil &
gas
Boiler and
Furnace
Water and salt content in
hydrocarbon causes excess
consumption of fuel oil & gas
in the furnaces

Water and salts
content in the
hydrocarbon should be
minimized to the
extend possible.

For effective energy optimization, the role of the manager is to identify critical areas of
energy losses, analysis them and bring improvement. In order to bring improvement, detail
estimates of losses and potential saving need to be carried out for which manager has to affix
responsibility to a person competent to perform the jobs. Responsible person has to carry out
his assigned job and suggest for measures. Based on that manager will draw action plan for
implementing the measures. The measures may be system improvement within the
department or by other means like conducting awareness among the employees.
Implementation of the schemes may require investment. In such a case manager has to
prepare a realistic cost estimate based on the feedback and get it approved for implementation.
Person responsible has to follow-up and takes necessary controlling measures after
implementation of the scheme/ measures. He has to report to managers on the outcome after
detail analysis of actual and estimates and tries to find out the cause of deviation if any, based
on which manger takes decision. The process should be continued for continual improvement
in energy saving.



Continuation of figure 7.2

85
7.3 PRODUCTION PROCESS OPTIMISATION

Process optimization is another way of bringing improvement in plants operation,
maximization of high value products by minimizing low value products, energy input and
reduce hydrocarbon losses. Process optimizations can be done by systematic study of the
process involved in the operation. Effort for process optimizations process should be a
continuous as a profit improvement measures.

In BRPL, study has been made in different areas; some of them have already been
implemented. One of such most successful schemes implemented in BRPL is desalter in
CDU. By installing desalter in both CDU-I & II, water content in Assam crude, which is
usually fluctuating from 2 % to even 8% and causing serious unstable condition in the main
fractionation column of CDU and resulting products quality problem has been reduced to
the level of 0.2%. Salt content in the crude oil also reduced significantly. This has stabilized
the operation of the main fractionation column, which has helped in achieving desired
product yield and quality. Besides, due to lower salt content, corrosion level in the DCU
furnace reduced thereby increased the run length DCU and also reduced the maintenance
cost. Another successful scheme implemented in BRPL was low-level heat recovery
(LLHR). By installing LLHR in CDU-I, considerable amount of waste heat is recovered
from the products rundown streams and utilized to preheat crude oil. This has saved
considerable amount of energy in the form of heat and contributed in improvement of
profitability of the company.

There are still many such scopes for improvement in BRPL, which can be achieved by
process optimizations. In my opinion, these can be explored and implement by systematic
study and action. Implementation of production process optimization programme needs
systematic approach, which involves the following steps:

Identify areas where process optimization is possible
Study about the technical and economical viability
Study about environmental impacts
Make projection of likely benefits
Estimate cost involvement
Take decision for implementation based on the above analysis
Implementation of measures
Analysis of results

Some of the areas where process optimization program can be implemented in BRPL are
highlighted below:

7.3.1 Maximization of hot RCO feed to DCU

DCU feed can be supplied to the unit directly from CDU as hot RCO (temperature about 120

86
o
C) and also from the RCO storage tank as cold RCO (80
o
C). Feeding cold RCO to the DCU
plant has two implications with respect to energy consumption.

Pumping cost of RCO from the storage tank
Additional energy consumption in the furnace to raise the temperature from 80
o
C to
120
o
C. This is besides the cooling water consumption for cooling the hot RCO to 80
o
C
for sending the same to storage tank.

An in-house estimation has been made by BRPL to find out the energy saving by maximizing
hot RCO feed to DCU. Crude throughput basis was taken only 1.6 MMTPA in spite of
having design capacity of 2.35 MMTPA in order to find out minimum energy saving by
implementing this scheme. Estimate shows 65 SRFT of energy equivalent of power saving
on account of pumping cold RCO from the tanks and 435 SRFT of energy equivalent of fuel
for raising cold RCO (detail calculation shown in annexure 4). Corresponds saving on this
account is about rupees 4.0 million per annum without any additional cost involvement. The
above estimation is exclusive of cooling water cost for cooling the hot RCO before
transporting to the RCO storage tanks.

Above saving is possible by effective production process optimization for which a standard
guideline has to be framed, giving all the technical details and the method of implementation.
Technical information can be generated after conducting necessary trail-run in the units. The
role of the manager is to ensure implementation by fixing responsibilities to competent
person and monitor the key parameters involved in the process. He is also responsible for
analyzing result, estimating benefit from the scheme and giving decision as a when needed.

7.3.2 Minimization of yields of RCO in CDU and that of heavy ends in DCU

A study on minimization of RCO yield in CDU and its effects in the distillate yield in DCU has
been carried out in BRPL. RCO being the feed to DCU unit, minimization of RCO yield in
CDU significantly affects the distillate yield in DCU. Study shows net gain of Rs 56.27 per
MT of crude by reducing RCO yield and higher end, which equivalent to total annual net gain
of Rs.90.03 Million. Detail calculation is shown in annexure 5.

Above saving is possible by effective production process optimization in CDU and DCU
units for which a standard guideline has to be framed, giving all the technical details and the
method of implementation. Technical information can be generated after conducting
necessary trail-run in the units. The role of the manager is to ensure implementation by fixing
responsibilities to competent person and monitor the key parameters involved in the process.
He is also responsible for analyzing result, estimating benefit from the scheme and giving
decision as a when needed.





87
7.3.3 HSD yield improvement

HSD constitutes primarily of two components, viz. Straight Run Gas Oil (SRGO) and Coker
Kerosene. Earlier, the yield of Coker Kerosene was about 26% on DCU throughput having an
end point of about 320
o
C. However, there was a complaint from customers on HSD quality
w.r.t. total sediments. For improvement of HSD quality, BRPL reduced the end point of Coker
Kerosene to about 270-280
o
C resulting in a reduction in yield of Coker Kerosene by about 4%
and corresponding reduction in HSD production.

In order to improve the quality as well as the quantity of HSD, rigorous study has been made in
laboratory and identified few stabilizer additives that are effective in reducing the total
sediment in HSD even for Coker Kerosene with end point greater than 300
o
C. This would
enable to increase the yield of Coker Kerosene to the earlier level of 26% thereby increasing
the production of HSD without compromising its quality w.r.t. total sediment.

Other ways of maximizing HSD production by process optimization as mentioned
below:
Optimization of gas oil yield from atmospheric distillation column of CDU. This not
only increases HSD yield, but also reduces RCO generation thereby reducing DCU
throughput and resultant increase in distillate products.

Stringent cut of SRGO and Coker kerosene and continuous doping of additives in the
rundown need constant monitoring of production process. The role of the manager is to
discuss with the concern technical personals of CDU and DCU units to find out the best way
of implementing scheme and ensure implementation by fixing responsibility to competent
persons and coordinate with them. He has to monitor the key parameter as a controlling
measure Another responsibility of the manager is to ensure availability of the additive in
order to maintain continuity of doping for which timely action of procurement need to be
taken with the purchase department. He is also responsible for analyzing result, estimating
benefit from the scheme and giving decision as a when needed.

7.3.4 LPG maximization

At present market scenario, demand of LPG is very high. Its price is also higher than the
Naphtha price. Therefore, maximization of LPG production is very essential to increase the
profit of the company.

At BRPL, the LPG recovery facilities have been provided in CDU and DCU units. In CDU,
LPG is recovered from unstabilisaed Naphtha and DCU plant, LPG is recovered from Coker
Off gas & unstabilised naphtha.

In CDU, the basic process for recovery of LPG from unstabilised naphtha is to separate C
3
/
C
4
components in naphtha stabiliser column under control operating pressure and temperature.

88
Hence, in order to maximise LPG recovery from CDU the following operating parameters of
stabiliser need to be monitored on regular basis:

Top and bottom temperatures of stabiliser.
Stabiliser column pressure. Low pressure in the column will cause higher amount of
hydrocarbons (propane and butane) to escape into fuel gas system and reduce LPG
make.

In DCU, the basic process for recovering of LPG from coker off gases are to absorb heavier
components of compressed coker gas with lean stabilized naphtha in a rectified absorber and
separation of LPG components from unstabilised naphtha in a debutaniser. Hence, in order to
maximise LPG recovery from DCU the following operating parameters of the absorber and
debutaniser column need to be monitored on regular basis:

Top pressure and temperature of absorber column.
Tray 3 temperature of absorber column.
Top and bottom temperature of debuatniser column
Debutaniser column pressure.

Yield of LPG needs strict maintenance of operating parameter in CDU and DCU units. The
role of the manager is to discuss with the concern technical personals to find out the best way
of implementing scheme and ensure its implementation by fixing responsibilities to
competent persons in CDU and DCU units. He has to coordinate with the persons responsible
for the job and monitor the key parameters involved in the process. He is also responsible for
analyzing results, estimating benefit from the scheme and decision making in order to
explore possibilities of further improvement measures.


7.4 PRODUCT MIX OPTIMIZATION

In order to achieve maximum Refinery profit, it is essential to optimize the product mix
considering the crude / product prices fluctuations and process changes. Due to volatility in
the international market, there is always crude / product prices fluctuations and this
necessitates process changes and optimization of product mix. In view of this, it is always
necessary to plan refinery operation in such a way considering all available opportunities can
derive that maximum profit and alternatives in the refinery configuration to arrive at optimum
product mix.

Maximization of high value products like LPG, MS, ATF, HSD etc.
Production of high value specialty products
Routing of intermediates streams to various finished products based on
feasible alternate routings to different products and economics thereof.

89
Optimization of severity of operations in units like Reformer unit to
maintain better product mix and profitability.
Optimization of secondary units throughputs
Optimum product mix and profitability calculation
Minimization of yields of RCO in CDU and that of heavy ends in DCU
Supply demand scenario
Blending and optimization of product quality
Minimization or elimination of quality give way

Implementation of products mix optimization in BRPL needs systematic approach, which
involves the following steps:

Study market value and demand of the products
Estimate benefits out of product mix optimization of products
Identify, production of which products are to be optimized by product mixture
Identify possible innovation of new value added products
Study, production of which products can be optimized
Estimate the quantity
Find methodology for implementation
Study adequacy of infrastructures
Estimate financial involvement
Take decision for implementation based on the above analysis
Implementation
Analysis of results

Recent years the company has conducted study in various areas and their outcomes are as
below:

7.4.1 MS maximization

MS maximization should be done based on the market demand. Price of MS is normally
higher than Naphtha. In view of that MS production needs to be maximized to improve
profitability.

At BRPL, MS production is maximized by processing wide cut Naphtha (105
0
C to 150
0
C) in
the Catalytic Reformer in the Xylene plant in the MS mode of operation to produce C
5
+
reformate, which is then blended with Cracked Naphtha from DCU and SRN in a definite
proportion to meet the MS quality with respect to octane number (RON 88) and Benzene
content (3% by volume in Metros and 5% by volume in local). MS is produced with above
blending component in the following ratio:

C
5
+
Reformate : 55 % by wt.
Coker Naphtha : 25 % by wt

90
SRN : 20 % by wt

The economics for MS maximization is shown below:

MS price = Rs 19,997 / MT (Basis: August 2002)
Naphtha price = Rs 11,330 / MT (-do-)

1 MT of Reformer feed Naphtha gives 0.9 MT of C
5
+
Reformate, which
goes to MS pool.
Gross value addition : Rs. (19997*0.9 11330)
: Rs 6667 / MT Naphtha
Fuel requirement : 0.13 MT / MT Naphtha
i.e. 0.13 * 9440 = Rs 1227
Net value addition: Rs ( 6667 1227) = Rs 5440 / MT Naphtha

a. 0.9 MT of C
5
+
reformate can upgrade 0.74 MT of Coker Naphtha
/ SRN (0.9 / 0.55 * 0.45 = 0.74) in view of the blend ratio
mentioned above.
b. Value addition for upgrading CN / SRN : 0.74
0.74*( 19997 11330) = Rs 6414
c. Total value addition: Rs (5440 + 6414) = Rs 11854 / MT
Naphtha

The role of the manager is to monitor the price of naphtha, MS and calculate the benefit,
which can be derived out of blending the above products with out compromising with the
quality of the product. For which he has to discuss with concerned personals of the units,
appraise them about the benefit, fixed responsibility to competent person and give decision
for implementation. For controlling, manager has monitor key parameter, analyze results,
estimate benefit and giving decision as a when needed.

7.4.2 HSD maximization

HSD maximization process helps in improving distillates yield and refinery profitability. At
BRPL, HSD has the following blending components:

a) Straight run Gas oil (SRGO) fro CDU
b) Coker Kero from DCU
c) Kerosene feed ( Kero-I /Kero-II) from CDU

HSD price (August2002) with 50 % excise duty benefit will always be higher than
Naphtha, SKO, ATF, LDO as shown below:

Price differential between HSD and Naphtha, SKO, ATF & LDO:


91
HSD Naphtha : Rs/MT 3200.32 (Basis: August 2002)
HSD SKO : Rs/MT 1563.10 (-do-)
HSD ATF : Rs /MT 309.26 (-do-)
HSD LDO : Rs/MT 3385.92 (-do-)

In view of the above price differential existing between HSD and other refinery products, it is
essential to maximize the HSD production for refinery profitability improvement.

There are various ways to maximize HSD production as mentioned below: BRPL should
study and take necessary step for implementation in order to improve the profitability of the
company.

Kerosene feed blending to HSD after meeting SKO & ATF production up to required
level.

The role of the manager is to monitor the price differential of various products, which can be
used for maximizing production of HSD and calculate the benefit, which can be derived out
of blending the above products with out compromising with the quality of the product. For
which he has to discuss with concerned personals of the units, appraise them about the
benefit, fixed responsibilities to competent person and give decision for implementation. For
controlling, manager has monitor key parameter, analyze results, estimate benefit and giving
decision as a when needed.

7.4.3 LSHS up-gradation to LDO by pour point depressant (PPD)

A study has been conducted in laboratory to find a suitable blend for upgrading LSHS
components to maximize LDO production by doping suitable pour point depressant (PPD).
Four PPDs were tried in nine different blends. The study conclusively established that two of
the PPDs were effective in certain blend of LDO in upgrading LSHS component (CFO). About
30% LSHS (in total LDO pool) can be upgraded by doping the above PPD.

Implementation of this scheme will improved the LDO yield and contributes in the
profitability of the company with minimum additional costs. The role of manager is to ensure
availability of the PPD in order to maintain continuity of doping for which timely action for
procurement need to be taken with the purchase department and follow up the results.

7.4.4 Routing of intermediate streams to finish products

There are some low value intermediate products like Coker Fuel Oil (CFO), Coker Naphtha,
Coker Kerosene in BRPL, which can be blended with high value products to improve profit.
Routing of intermediate streams to different products is depends on factors like refinery
economics i.e. how much the company can gain financially. What is the quality requirement
of finished products and what is the requirement for blending the product, whether the
company has the capability to do so?

92

Decision on proper disposal of streams is required to be taken based price difference
between products, quality requirement and product demand in the market.

In general, there is flexibility in optimizing the product mix by selective routing of various
streams depending on the profit margin linked with products and their respective demand so
that overall profitability can be increased. This is however a short time measures. The role of
the manager is to collect information on price of products, market supply-demand and
formulate plan for implementation and take decision. He has to provide necessary resources,
coordinate with the concern persons, fixed responsibilities to competent persons, monitor the
activities, evaluate benefit out of implementation of the schemes and make decision.


7.5 IMPROVEMENTS IN MAINTENANCE MANAGEMENT

Maintenance is an associated supportive function of plant operation. Unless there is support
from maintenance, operation of plant is not possible. Condition of the plants health depends
how properly it has been maintained.

In BRPL existing maintenance division is grouped based on their disciplines (mechanical,
electrical, instruments and civil) and except civil maintenance, others are regrouped based on
area of operation. Existing maintenance-planning department of BRPL is just keeping records
without much control over the system. As a result the divisional maintenance head
overburdened with scattered information and activities of different areas and the possibility
wrong decision-making increases. With the existing maintenance of BRPL, it is not possible
to utilise resources uniformly. Because maintenance activities are unpredictable, it depends on
the condition of the plants at that particular moment, so distribution of resources especially
manpower to an area in a permanent nature is often wasteful or some times it is not adequate.
The chances of equipment failure in the existing maintenance set up are more due to the
above problem. In order to bring overall improvement in the total maintenance activities of
BRPL, the following measures are suggested which will help in better organisation and
control of maintenance activities by assigning responsibilities and optimised utilisation of
resources.

The proposed maintenance management system to bring improvement by way of fulfilling the
following purposes:

To maximise utilisation of available resources
To avoid unnecessary wastage of man-hours
On-the job training to update job knowledge and personal development
Bring uniformity in job distribution by mutual supporting system
Faster maintenance approach
New system will help in centralising the maintenance activities

93
Improve information system
Documentation system streamlined
Figure 7.3: Proposed model of maintenance management


Source: Author
To systematise the maintenance function in BRPL and to improve their effectiveness, a model
of maintenance structure, their function and responsibility is proposed as shown in figure 7.3
above:
7.5.1 Proposed central maintenance planning (CMP) department
Proposed CMP will function directly under maintenance divisional head and senior or chief
manager will assist him. The proposed central maintenance planning department (CMP) is to
be structured as below:

Senior or chief manager and his group will be officiating in general shift. Size and
composition of the group will be determined based on the assessment of workload.
CMP department will be the custodian of all the maintenance resources (work force
and maintenance equipments etc.). They will maintain centralised resource pool.
CMP department will allocate resources to field maintenance group from the
centralised resources pool.
One shift maintenance manager along with two supervisors (engineer /senior
engineer) will be associated in each shift. Shift maintenance manager will report to
senior/ chief manager.
Work forces from the resources pool will be maintained separately for general shift
and special shifts (morning, evening and night)

Petrochemicals
Maintenance
Refinery
Maintenance
CPP Maintenance
O M & S
Maintenance
Refinery
Operation
Petrochemicals
Operation
CPP Operation
OM&S
Operation

94
Resources pool and resources under field maintenance groups will be under shift
maintenance manager during special shift hours.
Responsibility and authority of managers of deferent maintenance groups are well
defined and the same will be determined by CMP. Based on that managers of different
groups will organise maintenance functions of the areas assigned under him by sharing
and fixing responsibilities with the persons under him. He will coordinate and use
feedback system for controlling the activities and give decision.

The basic idea of central maintenance planning is to centralise maintenance function and to
improve its effectiveness. Maintaining centralised resource pool can help in efficient
utilisation of resources. Since people will have to work in different areas, they can gathering
more experience and develop skill. Plant operation is a continuous process and therefore
maintenance function has to run on shift basis in order to carry out the same at any point of
time as and when needed. For overall improvement, CMP department should be given the
following functions and responsibilities:

Service of CMP department will be twenty-four hour basis.
Maintain centralised resource pool and from the pool, work force and maintenance
equipments etc. will be supplied to different field maintenance groups as per demand
Co-ordination and providing assistance to field maintenance groups
Co-ordination with central works shop for providing assistance to field maintenance
groups.
Prioritisation of maintenance activities
CMP department will maintain on-line communication networks, which will be
accessible to all the groups on twenty-four hour basis.
Special shift group will be responsible for all the maintenance activities during the
shift hours.
General shift group will be responsible for:

- Daily planning,
- Brief daily situation to divisional head and take advise
- Holding discussion with field maintenance groups
- Resources allocation during general shift hours
- Prepare shift-rota
- Prepared MIS report
- Conduct on the job-training program to general shift maintenance
personals.
- Documentation and record keeping
- Arrangement for on the job training to maintenance personals
- Development of methodology for measurement and standardisation of
maintenance activities and its implementation
- Maintain minimum stocks of spares

95
- Resources allocation from centralised resources pool or even from
other field maintenance groups to different areas based on need basis
during general shift hours.
7.5.2 Proposed central works shop (CWS) department
Proposed CWS consists of maintenance groups of mechanical, electrical and instrumentation
disciplines. They are performing repair works of equipments and machineries and plays as a
supportive department to the field maintenance groups. Even though different disciplines are
involved but the department will run under single head of senior manager or chief manager
level. The department will be responsible to carry out the following activities:

Carry out all repair works
Priority of the jobs will be given based on the instruction of CMP department
Maintain and feed all the information in one line communication network
Keeping all equipments of CWS properly and healthy condition
Co-ordination with CMP and field maintenance groups

7.5.3 Proposed maintenance condition monitoring (MCM) department

Proposed MCM department will look after the condition of all equipment and machineries of
the plants and will run under functional head of senior manager or chief manager level. The
department will be responsible to carry out the following activities:

Prepare schedule for condition monitoring of equipments (plant-wise)
Carry out condition monitoring activities as per the schedule
Maintain close co-ordination with the operation groups
Maintain close co-ordination with CMP
Frequency of monitoring of equipment and machineries will be determined based on
the condition of the equipments.
Keep maintenance records of all equipments
Monitoring report of equipments should be feed in the communication networks along
with their recommendations.
Analysis the behaviour of equipments and placed findings as and when required

7.5.4 Field maintenance groups (Refinery, Petrochemicals, CPP and OM&S)

Proposed field maintenance groups (Refinery, Petrochemicals, CPP and OM&S) will run
under separate functional head of senior manager or chief manager level. These departments
are grouped with minimum manpower and resources in order to meet the immediate
maintenance support in the respective plants. Size and composition of the groups will be
formed based on the practical assessment of normal work volume and the same will be
determined by CMP. Even though different disciplines are involved but the department will
run under single head of senior manager or chief manager level. The department will be
responsible to carry out the following activities:

96
Collect work order from the plant
Carry out maintenance activities in the plant
Place demand for additional resources from CMP in case needed
Isolation and transportation of equipments from plant to CWS and taking back to plant
and re installation after repair
Coordination with CMP and operation department
Keeping records and feed all information in the communication networks


7.6 SYSTEM AUTOMATION

System automation is the mechanisation or computerisation of a system by which the working
system can be made faster, simple and accurate. In refinery there are scope for system
automation in various fields. BRPL has recently introduced tank firm automation system in
all the crude and product tanks. This system replaced earlier tedious and time-consuming
manual tank information collection system. BRPL is operating more than hundred crude and
product tanks. Keeping information for all these tanks was very difficult and operator often
did mistake. Most often products were overflowed or drained out along with water from the
tanks, causing considerable losses to the company. With the system automation, it is now
possible to get all-important information such as capacity of the tanks, products availability in
the tank, water content, tank temperature, safe filing height, whether tank is in operation or in
idle condition etc. on-line. This has reduced the operational workloads, improve tank
monitoring, system become more accurate and reliable and eliminate considerable amount of
losses. Similarly, System automation in material management system (MMS) has been
introduced, which enable to collect on-line information about availability of materials such as
spare parts, chemicals etc. MMS system also provides facility for on line indenting, rising
purchase order etc. The system helps in efficient inventory management and control
electronically and eliminated earlier kardex system. After introduction of this system the
company could considerably reduced the inventory level.

7.6.1 Integrated management information system (IMIS)

In my opinion, automation of information system in BRPL is very important at this moment.
Although BRPL has infrastructures for information networking system but it is not effective
to take care of the total information system of the company. At present the communication
system of BRPL is localised which can be described as Islands of information. Such system
scattered information and create more complication. More of the time information are
repeated in different form and create more confusion. Moreover, the information flow system
is become very slow and erroneous. Such information are often misleading and affect the
decision making process. Slower decision making often miss the opportunity, while taking
wrong decision generate problem. In order to avoid such situation, integrated
communication system is essential in BRPL to make information flow faster and more
accurate, which only can the decision making process accurate and faster. To caters the

97
need, Automation in information system necessary. Considering the above facts, a customised
integrated management information system (IMIS) is designed shown as figure 7.4 below,
which may be suitable for BRPL:
Figure 7.4 Proposed integrated management information system (IMIS) Network





















MIS
Report
Finance &
Accounts
Report
Project Report
HR
Report
Marketing
Report
Operation
Report
Tendering
Planning
Construction
Purchase
Central
Design
Department
Establishment
Regional
Office
Central
Account &
Budget
Sales, Purchase,
Taxation, Insurance,
Provident Funds etc
Oil Account
Excise
welfare
Miscellaneous
account
Liaison
Office
Public
Relation
Personnel
Hospital
Administration
Regional
Marketing
Office
Industrial
Relation &
legal
Divisiona
l
Marketin
Fire
Fighting
Environment
& safety
Petrochemicals
Refinery
Quality Control
Tendering
Captive
Power
Plant
Materials &
Warehouse
Oil Movement
& Storage
Contract
Internal
Audit
Maintenance
Human
Resources &
development
Sports &
Community
Development
Source: author

98
Proposed IMIS is designed to incorporate the following:

Identify the important user points in different operational areas and extend the
existing communication network to all the points
Develop customised software suitable for BRPL
On the job training to each individual to familiarise with the system operation.
System should be design for on-line information flow.
All information should be accessible to all users.
Management Information System (MIS) report will contain highlight of important
events of all the areas.
Every divisions and departments will use standard format for floating on-line
information. Format may very division-to-division or department-to-department
based on their requirement.
Information will be updated immediately after completion of every event.
Entry of information will be at the first point, which will be act as data collecting
sources.
On-line information will covers all plan and program for day-to-day business
activities of all the divisions and departments.

7.7 PROPOSED HUMAN RESOURCES MANAGEMENT IN BRPL

SWOT analysis of BRPL in chapter 6, highlight problems related to human resources
management such as inter-departmental rivalry, lack of awareness in the areas like energy
conservation/optimization activities, lack of motivation due to improper performance
measurement of individuals, un-uniform work distribution and unspecific reward and
punishment system. All the above have long run negative impact in organizational culture and
affect overall companys performance. In order to improve the performance of the
organization as well as the individuals and to harmonize the organizational culture to the
extend possible, the following measures are proposed to adopt in BRPL.

7.7.1 Cohesive team building

BRPL should emphasize on cohesive team building based on the organizational structure,
which may confine within departments or divisions. Following approach should be taken to
build a cohesive team.

Form the team with skilled work force who can don the job.
Team size should be optimum
Create working environment by providing assistance
Clarify the objectives and goals of the team
Working process and procedure should be standardized
Keep team morale high by frequent meeting and close association


99
No discrimination among the team member
Help in building good personal relationship among the members
Establish two way communication
Motivation by making the people feel that the task performing by them is significant
to the organization.
System should be developed for performance evaluation and improvement measures
Leadership should be participative

7.7.2 Improve inter-group relationship

To improve inter-group relationship, BRPL should focuses on the following:

Sharing overall business goal and results information
Develop organizational culture of treating every body with respect
Cultivate loyalty to the organization by informing about the influence of the
organization to the society and their families
Job boundary are clearly defined to the extend possible
Fixed responsibility
Develop discipline and progressive systems
Develop system for improvement of inter personal relationship
Interdepartmental discussion on related issues

7.7.3 Create continuous learning environment

In order to survive and to grow in the present business scenario an organization has to create
continuous learning environment within the organization. There are various methods of
creating continuous learning environment in an organization however; the following are
suitable to BRPL.

Extensive communication by various method of communication
Adopt job rotational program
Training
o On the job training (Job related training)
o Training related to personal development
o Training out side the factory premises (in country or abroad) as a means of
motivation
Conduct awareness program on various fields like energy conservation/ optimization,
environmental issue, corporate culture etc.

7.7.4 Motivation

The job of a manager in the work place is to get things done through employees. To do this
the manager should be able to motivate employees. Human nature can be very simple, yet

100
very complex too. An understanding and appreciation of this is prerequisite to effective
employees motivation. Motivation is the key to performance improvement because well-
motivated employees overcome all the deficiencies of poor structure and process. There are
many ways of motivation however the following are suitable to BRPL.

Clear promotion policy
Career planning entails matching an individuals skills and aspirations with
opportunities
Motivate by making the people feel that the task performing by him is significant
to the organization.
Value on skills of individuals
Reasonable compensation package
Introduce reward system for best performers
No discrimination

7.7.5 Performance management system

BRPL should emphasized on the following points in order to improve the performance of
individuals in order to improve the overall performance of the company.
Individuals often under performed due to his placement to a job, which is not of his interest or
as per his qualification. In such situation individual get frustrated and also work suffered. Such
incident is not rare in BRPL. To improve the performance of individuals and also to avoid
wastage of man-hours, selection of right man for the right job is necessary.

Within BRPL, distribution of workload is not uniform; it is observed that from one
department to another or even person to person in the same department, someone is over
loaded with his works and some one is sitting idle. This is a cause for de-motivation of the
employees those who are really hard working. On the other hand person sitting idle frustrated.
This has serious affect to the work culture of the company. To avoid such situation, job
distribution and responsibility sharing should be made uniform to the entire individual and
at all levels as per as practicable. Uniformity in job distribution can be brought by job
standardization and measurement and individual performance recording system.

For individual performance recording, a model chart shown as figure 7.5 below can be
introduced in BRPL.

Figure 7.5 Model chart for performance record

Time Performed by Date Job
no.
Job
Code
Job
weightage Start Finish Name Signature
Check-
ed By
Remarks


Source: Author

101
For measurement of jobs, BRPL can adopt method of standardization of jobs/activities. A
model chart along with example for standardization of jobs is shown as figure 7.6 below:

Figure 7.6: Model chart for standardisation of jobs

Man-hour Job
Code
Job
Description
Activities
Minimum Maximum Average
Company
Average
Man hour
(Weightage)
Industry
Average
Man hour
Dismantling
of pump
2 3 2.5
Cleaning 1 2 1.5
Fixation of
mechanical
seal
6 8 7
001 Mechanical
Seal
replacement
of a pump
Re-
assembling
4 6 5



16



12
002




Source: Author


7.8 ORGANISATION OF PROFIT IMPROVEMENT PROGRAMME (PIP)

Profit Improvement Programme (PIP) is a management function, which needs continuous
effort to achieve the goal of the organization. Since the survival and growth of an
organization is depending on the profitability, therefore PIP is one of the top most priority
functions of an organization and it should be permanent in nature. It is also a decision-
making process and often financing is required, therefore involvement of highest authority is
important in the process. To implement this programme in BRPL a systematic and organized
approach (team) has to be taken which allow management to focus on achievable goals and
to attain the best possible results from available resources based on management by
objective (MBO) practices. The management has to focus on the result, not the activity and
delegate tasks by "negotiating a contract of goals" with the subordinates without dictating a
detailed roadmap for implementation. For implementing PIP in BRPL with continuous
efforts, it is necessary to form issue base task forces comprising members from different
strategic areas. It may be possible that some area might yield more result or need more deep
analysis to enhance profit than the other; the task force will discuss all these issues and
affixed responsibility to a person. The responsible person has to suggest the appropriate
measures and implement the same. He should also be made responsible for follow-up and
controlling of the measures.


102
C&MD and other functional directors are the part and partial of the profit improvement
programme. However, their involvement in full time basis is not possible therefore person of
General Manager level is to be assigned in a formal way with responsibility and authority. He
will be responsible for assisting management in formulating strategies and decision-making
process for implementation. He also involves in negotiating a contract of goals to divisional
heads and assigned responsibilities with authorities. Responsibility of the divisional heads is
to implement the programme and fulfill their goals by engaging competent personal to
achieve negotiated goals.

PIP becomes a part of management therefore no separate budget is needed. Plan figures from
the budget become goal or objective of this programme. The best idea is that the analysis of
business and environment is conducted within the annual planning and budgeting.

103
CHAPTER 8

CONCLUSION

BRPL had been making profits under APM due to assured return on net-worth in addition to
reimbursement of actual operating cost. However, after abolition of APM by the government
of India, the profitability of BRPL became inconsistent. The company-incurred losses during
the financial year 2000-01 and 2001-02 are indicative of fluctuating financial performance
and it is difficult to predict future performance due to market driven pricing mechanism. The
profitability of BRPL is at stake due to the following perceive threats:

Lower crude availability in the region
Fluctuating crude and products prices
Stringent environmental and safety regulations
Fast changing technology
Increased competition from other refineries

Due to lower crude availability in the region (Upper Assam Oil Fields), infrastructure
facilities has been developed to supply crude oil from Krishna Godavari basin of Southern
India and for importing crude oil, therefore shortage of crude oil may not be a hindrance in
full capacity utilization as long as the company can effort to buy crude oil from all these
sources. But further enhancement of refining capacity may not be feasible due to its locational
disadvantages for transporting crude oil and products. As such transportation cost of crude oil
is high due to its distance from the sources. Existing crude oil supply pipelines are partly
owned by IOC and partly by Oil India Limited (OIL) and they are used in shared basis with
other Indian Oil refineries. Similarly IOC owns products pipeline and the same is also used as
shared basis. Therefore supply of crude oil as well as dispatch of products by pipelines stand
as a major bottleneck in capacity enhancement of BRPL. Viability of the refinery is a question
at the present highly competitive environment due to its lower capacity. However, the
company has already invested a huge amount in infrastructure development. Moreover, as a
public enterprise to the government of India, BRPL has socio-economical obligation to the
region. Therefore closure of BRPL cannot be a solution. The option available at this juncture
is to continue petroleum-refining business by taking internal improvement measures by best
utilizing existing strength of the company and removing weaknesses to the extend possible.
Study has been undertaken with the goal to find out main areas of improvement in refinery
and to help in making better decisions within the selected areas, which will lead to
improvement of profitability in BRPL.
The above goal can be achieved in the following ways:

Systematic study of energy consumption and find out the critical areas where
consumption of energy can be optimised in order to minimise fuel and loss (OFL) of
the company. This also includes recovery of energy from various area of potential.


104
Maximize capacity utilization by exploring all possible ways to bring crude oil from
different sources viz. Upper Assam oil fields, Krishna Godavari basin and imported
crude oil to a maximum, limiting to its capacity of 2.35 MMTPA. Simultaneous action
for movement of products is to be made well in advance in order to avoid products
containment problem. Action for unplanned shutdown of the plant due to technical
failure, which is also a major cause of capacity under utilization, needs to be taken by
adopting best operational and maintenance practices.

Systematic study of different process and find out critical areas where process
optimization is possible in order to improve the product yields or to minimize
consumption of energy.

Systematic study of product mix blending/optimization in order to maximize
production of high value products by utilizing low value products based on the market
value study.

Systematic study on maintenance functions and finding out their short comings and to
adopt necessary measures in order to bring improvement, which ensure better plant
maintenance by optimum and effective utilization of available resources.

System automation in the critical areas as per as practicable in order to minimize
manual operation and to make the system more faster and reliable.

Adopting best human resources management practices by cohesive team building,
bringing improvement inter-group relationship, create continuous learning
environment in the organization, motivation people and adopting appropriate
performance management system.

It has been observed that world over small capacity refineries is not viable from the techno-
economical point of view. Suitable strategic decision may be taken in order to capacity
enhancement and technology up gradation based on the projection of future market demand
and supply. However short-term measures can be taken to improve and to sustain profitability
by taking various improvement measures in different critical areas.

Refinery is an energy intensive industry, where electricity, steam, fuel oil & gas are used as
the main sources of energy. Basic source of above forms of energy is hydrocarbon (petroleum
oil) therefore optimization of energy is basically conservation of hydrocarbon, which in turn
contributes in minimizing fuel and loss (OFL) and thereby improves profitability of the
company. Most of energy optimization schemes need only systematic study and continuous
effort of improvement without or with little cost involvement. There fore it is recommended
to implement energy optimization schemes in BRPL in order to bring improvement in the
profitability.


105

Maximizing sells of products can increase profit; of course, the selling price must be higher
than the production costs. However maximizing capacity utilization of the plants can
maximize volumes of products. Therefore, to maximize capacity utilization vis--vis
maximizing production, it is suggested to explore all possible ways to bring crude oil from
different sources viz. Upper Assam oil fields, Krishna Godavari basin and imported crude oil
to a maximum, limiting to its design capacity (2.35 MMTPA). Simultaneous action plan for
movement of products is to be drawn well in advance to avoid products containment problem
and unplanned plant shutdown due to technical failure is to be contented.

Study reveals that process optimisation in different critical areas contribute considerably in
improvement of profitability without or with little investment. Therefore it is recommended to
implement the following process optimisation programme in BRPL.

Maximization of hot RCO feed to DCU directly from CDU units recovers substantial
amount of heat energy from RCO rundown and thereby reduce fuel consumption in
DCU furnaces.
Minimisation of RCO yields and that of heavy ends in DCU and upgrading the same
to high value products.
Improvement of HSD yields in CDU and DCU plants by doping stabilizer additives
Maximisation of LPG yields from CDU by diverting part of naphtha ex CDU to LPG
pool and also recovering LPG from coker off gas of DCU.

Optimising product mix can bring improvement in the profitability of BRPL without or with
little investment. Therefore, it is recommended to implement the following product mix
optimisation programme in BRPL.

Maximisation of MS yield by diverting part of naphtha ex CDU and by processing
wide cut Naphtha (105
0
C to 150
0
C) in the Catalytic Reformer in the MS mode of
operation and optimum blending with cracked naphtha from DCU and SRN.

Maximisation of HSD yields by optimum blending of SRGO ex. CDU, Coker Kero
ex DCU and Kerosene feed ( Kero-I /Kero-II).

Up-grading LSHS to LDO by doping pour point depressant (PPD).

Routing of intermediate low value product streams directly to finished products with
out incurring processing

Maintenance is an associated supportive function of plant operation. Unless there is support
from maintenance, operation of plant is not possible. Condition of the plants health depends
how properly it has been maintained. Failure in maintenance may leads to unplanned plant
shut down; equipment damages etc. which can increase the cost of production and affect the

106
profitability of the company. Therefore it is recommended to modify the existing maintenance
structure of BRPL in order to ensure its effectiveness in proper maintenance of plants and
machineries and optimum utilisation of existing resources.

Automation of information system in BRPL is important from the view point of faster and
correct information flow and thereby improve communication system, which enable the
company to improve decision making process on day-to-day business operation. Duplication
of information often misleading and it is unnecessary waste of time. Delay in decision making
due to delayed information flow often miss the opportunity. Similarly wrong decision based
on wrong information can cause more problems to the organisation. In all the cases company
is affected. Therefore it is recommended to implement automation of information system in
BRPL in order to improve the communication system and to help in improvement of decision-
making process.

Human is the most precious resources of any organisation. All the above discussions do not bear fruits
unless human resources are well managed. In order to get best possible out put it is important to
adopt best human resources management practices which is most suitable to an organisation.
Therefore it is recommended to adopt best human resources management practices in BRPL
giving more focus in the following areas:

o Cohesive team building
o Improve inter-group relationship
o Create continuous learning environment
o Motivation of employees
o Performance Management System




107
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29. http://www.websitemarketingplan.com/Arts/SWOT.htm



I
Annexure 1

Year-wise consumption of petroleum products in India

(000 tonnes)
Year to 31 March 1996 1997 1998 1999 2000 CAGR (%)
LPG 3849 4184 4581 5041 6029 11.9
MS 4679 4955 5182 5507 5909 6.0
Naphtha 3669 4015 4716 6652 7970 21.4
NGL 475 682 768 330 91 -33.8
Others 472 548 495 428 474 0.1
Light distillates 13144 14384 15742 17958 20473 11.7

ATF 2082 2158 2108 2112 2197 1.4
SKO 9317 9646 9878 10599 10731 3.6
HSD 32254 35019 36071 37217 39287 5.1
LDO 1311 1223 1235 1278 1512 3.6
Others 495 498 424 480 532 1.8
Middle distillates 45459 48544 49716 51686 54259 4.5

Lubes 711 705 835 885 915 6.5
FO 6496 6534 6651 6767 6816 1.2
LSHS 4189 4313 4323 4537 4763 3.3
Bitumen 2005 2273 2178 2412 2879 9.5
Petroleum coke 319 276 227 315 328 0.7
Others 195 195 166 206 218 2.8
Heavy distillates 13915 14296 14380 15122 15919 3.4

Imports by Private Party 0 1944 4452 5796 5639 30.5

Total demand 72518 79168 84290 90562 96290 5.0
Source: Ministry of Petroleum & Natural Gas






II
Annexure 2

Year-wise imports of crude oil and petroleum products ('000 Tonnes) in India

(000 tonnes)
Year to 31 March 1995-96 1996-97 1997-98 1998-99 1999-00

Crude Oil 27342 33906 34494 39808 44989

POL Products

1. LPG 678 1035 1087 1525 1377
2. Others 439 455 335 422 241
Light. Distillates 1117 1490 1422 1947 1618

1. ATF 97 150 55 0 1
2. SKO 5001 4279 3812 5823 5491
3. HSD 12852 13608 14075 10485 5408
Middle. Distillates 17950 18037 17942 16308 10900

1. Furnace Oil 1209 694 141 514 483
2. Lubes 58 44 25 11 66
Heavy. Distillates 1267 738 166 525 549

Total POL Products 20334 20265 19530 18780 13067

Total (A+B) 47676 54171 54024 58588 58056
Source: Ministry of Petroleum &Natural Gas

III
Annexure 3

Year-wise exports of crude oil and petroleum products in India
('000 tonnes)
Item ('000 tonnes) 1995-96 1996-97 1997-98 1998-99 1999-00

Crude Oil 0 0 0 0 0

POL Products

1. Naphtha 2461 2184 1407 643 214
2. LPG 17 22 21 23 31
3. Others 539 437 670 113 39
Light. Distillates 3017 2643 2098 779 284

1. HSD/LDO 209 216 237 260 278
2. Others 187 221 254 271 308
Middle. Distillates 396 437 491 531 586

1. Furnace Oil / LSHS 22 82 360 91 29
2. Others 0 0 1 0 0
Heavy. Distillates 22 82 361 91 29

Total POL Products 3435 3162 2950 1401 899

Total (A+B) 3435 3162 2950 1401 899
Source: Ministry of Petroleum &Natural Gas


IV

Annexure 4

Calculation of energy saving by maximizing hot RCO feed to DCU:

Basis: Crude throughput =1.6 MMTPA

(Crude throughput basis is taken only 1.6 MMTPA in spite of having design
capacity of 2.35 MMTPA in order to find out minimum energy saving by
implementing this scheme)

Assumptions:
Desired hot RCO feed to DCU : 85%
Consider: hot RCO feed to DCU : 50%
(It may be noted that during J uly 2000 hot RCO feed was as low as only 29%)

Hot RCO temperature : 120
o
C
Cold RCO temperature : 80
o
C
RCO generation @41% on crude throughput : 656 TMT
Cold RCO @35% : 230 TMT

Energy loss:
(ii) Power required for pumping cold RCO : 210MWH (230000/82*75/1000)
= 65 SRFT

(ii) Fuel required for raising cold RCO : 4350 MKCal
temperature from 80
o
C to 120
o
C = 435 SRFT
(230000*0.473*40/1000)

Thus, the total energy loss by feeding 35% lower (85% - 50%) hot RCO would be about 500
SRFT per annum at a crude throughput of 1.6 MMTPA. This corresponds about Rupees 4.0
million per annum. This is excluding the cooling water cost for cooling the hot RCO before
transporting to the RCO storage tanks.

V
Annexure 5

Minimization of yields of RCO in CDU and that of heavy ends in DCU

A study on minimization of RCO yield in CDU and its effects in the distillate yield
in DCU has been carried out in BRPL. RCO being the feed to DCU unit,
minimization of RCO yield in CDU significantly affects the distillate yield in DCU.
The study and outcome is shown as below:

A) RCO yield in CDU can be reduced through following means:

Main Fractionation Column should be operated at low pressure at about 1.2
Kg/cm
2

Adequate stripping steam at column bottom to strip off light ends from RCO
Furnace COT is to be maintained steady at about 358
0
C
Maximization of SRGO draw off from the column by maintaining its
recovery at 370
0
C

B) Heavy ends in DCU can be reduced through following means:

Coker kero yield is to be maximized by maintaining to end point above
300
0
C
LGO and HGO draw off to be maximized
Furnace COT to be maintained steady at 498 499
0
C

C) Impact of 1% RCO yield reduction in CDU and 1% heavy end reduction in
DCU on profitability:

Basis: 100 MT Crude

(a) Impact of lower RCO yield in CDU:

Base Case Improved case

SRGO yield 22.70 23.70
RCO yield 41.50 40.50

Gain in SRGO yield: 1 MT

Impact of higher SRGO yield: 1 * Rs 14530 =Rs 14530
i.e. Rs 145.30 / MT Crude(A)



VI


Impact of DCU yield pattern

Streams Yield Base Case Improved
case
Delta Price Impact
% MT MT MT Rs./MT Rs.
RCO 41.5 40.5 -1.00
LPG 2.5 1.04 1.01 -0.03 15030 -452
CN 5.8 2.41 2.35 -0.06 11330 -689
CK 26 10.79 10.53 -0.26 12967 -3371
LGO/HGO 18 7.47 7.29 -0.18 11144 -2006
CFO/CR 23.9 9.92 9.68 -0.24 9440 -2266
RPC 14.3 5.93 5.79 -0.14 5963 -835
Total impact - 9619

Impact of DCU yield pattern: - 96.19 Rs/ MT of Crude (B)

(b) Impact of Higher end reduction in DCU (1 % reduction in CFO/CR):

1 % reduction in CFO / CR will result corresponding increase in LGO/HGO yield.
With 41.5 MT RCO feed, incremental increase in LGO/HGO will be 0.42 MT.
Impact of reduction in higher end in DCU: 0.42 * (11144 9440) =Rs 716
Impact of reduction in higher end in DCU, Rs / MT Crude = Rs 7.16 ( C)
Net gain by reducing RCO yield & Higher end = (A + B + C) = Rs 56.27 / MT Crude
Total annual net gain by reducing RCO yield & Higher end = Rs.90.03 Million

Assumption:
Crude throughput 1.6 MMPTA
Product prices basis: August 2002